What is the expected return on this stock given the following information? $\begin{array}{lcr} \text { State of the Economy } & \text { Probability } & E(R) \\ \text { Boom } & .7& 12 \% \\ \text { Recession } & .3 & 8\% \end{array}$

A) 6.00% . B) 2.00% C) 0% D) 2.00%. E) 6.00% A) 6.00% . B) 2.00% C) 0% D) 2.00%. E) 6.00%

The risk-free rate is 3.0%. What is the expected risk premium on this security given the following information? $\begin{array}{lcr} \text { State of the Economy } & \text { Probability } & E(R) \\ \text { Boom } & .30 & 16\% \\ \text { Normal } & .50 & 8\% \\ \text { Recession } & .20 & -12\% \end{array}$

A) 2.90% B) 3.01% C) 3.40% D) 3.80% E) 4.15% A) 2.90% B) 3.01% C) 3.40% D) 3.80% E) 4.15%

A portfolio consists of the following securities. What is the portfolio weight of Stock C? $\begin{array}{lll} \text { Stock }&\text {\#Shares }&\text {PRS }\\ \text { A } & 200 & \$ 48 \\ \text { B } & 150 & \$ 33 \\ \text { C } & 350 & \$ 21 \end{array}$

A) .336 B) .389 C) .445 D) .451 E) .557 A) .336 B) .389 C) .445 D) .451 E) .557

You have a portfolio which is comprised of 40% of Stock A and 60% of Stock B. What is the portfolio standard deviation? $\begin{array}{lllr} \text { State of the Economy } & \text { Probability } &\text {E(R)}_{A}&\text { E(R)}_{B}\\ &&40\%&60\%\\ \\ \text { Boom }&.10&20\%&14\%\\ \text { Normal } & .75 & 11\% & 9 \% \\ \text { Recegsion } & .15& -20 \% & -5 \% \end{array}$

A) 4.00% B) 5.56% C) 6.06% D) 6.82% E) 7.95% A) 4.00% B) 5.56% C) 6.06% D) 6.82% E) 7.95%

What is the variance of the expected returns on this stock? $\begin{array}{lrr} \text { State of the Economy } & \text { Probability of } & \text { Rate of Return if } \\ & \text { State of Economy } & \text { state occurs }\\ \text { Boom } & .30& 20\% \\ \text { Normal } & .70 &10 \% \end{array}$

A) 18.75% B) 21.00% C) 31.53% D) 48.97% E) 50.03% A) 18.75% B) 21.00% C) 31.53% D) 48.97% E) 50.03%

What is the expected return on this stock given the following information? $\begin{array}{lrr} \text { state of the Economy}&\text { Probabllity}&\text { Rate of}\\ &\text {of State of Economy}&\text {Return if}\\ &&\text {State Occurs}\\ \text { Boom } & .15 & 22 \% \\ \text { Normal } & .60 & 11\% \\ \text { Recession } & .25 & -14 \% \end{array}$

A) 6.40% B) 6.57% C) 8.99% D) 13.40% E) 14.25% A) 6.40% B) 6.57% C) 8.99% D) 13.40% E) 14.25%

The risk-free rate is 2.20%. What is the expected risk premium on this stock given the following information? $\begin{array}{lrr} \text { State of the Economy } & \text { Probability } & \text { Rate of Return if } \\ & \text { of State of Economy } & \text { State occurs }\\ \text { Boom } & .35 & 18 \% \\ \text { Normal } & .65 & 98 \end{array}$

A) 9.25% B) 9.75% C) 9.95% D) 10.16% E) 12.15% A) 9.25% B) 9.75% C) 9.95% D) 10.16% E) 12.15%

Exam 11: Diversification and Risky Asset Allocation

You own three securities. Security A has an expected return of 11% as compared to 14% for Security B and 9% for Security C. The expected inflation rate is 4% and the nominal risk-free rate is 5%. Which one of the following statements is correct?

(Multiple Choice)

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Question 61

You have a portfolio which is comprised of 70% of Stock A and 30% of Stock B. What is the expected rate of return on this portfolio?

(Multiple Choice)

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Question 62

A portfolio that belongs to the Markowitz efficient set of portfolios will have which one of the following characteristics? Assume the portfolios are comprised of five individual securities.

(Multiple Choice)

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Question 63

Stock A has a standard deviation of 15% per year and Stock B has a standard deviation of 21% per year. The correlation between Stock A and Stock B is .30. You have a portfolio of these two stocks wherein Stock B has a portfolio weight of 60%. What is your portfolio standard deviation?

(Multiple Choice)

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Question 64

What is the expected return on this stock given the following information? State of the Economy Probability E(R) Boom .7 12\% Recession .3 8\%

(Multiple Choice)

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Question 65

The risk-free rate is 3.0%. What is the expected risk premium on this security given the following information? State of the Economy Probability E(R) Boom .30 16\% Normal .50 8\% Recession .20 -12\%

(Multiple Choice)

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Question 66

A portfolio consists of the following securities. What is the portfolio weight of Stock C? Stock \#Shares PRS A 200 \ 48 B 150 \ 33 C 350 \ 21

(Multiple Choice)

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Question 67

What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset?

(Multiple Choice)

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Question 68

There is a 35% probability that a particular stock will earn a 16% return and a 65% probability that it will earn 10%. What is the risk-free rate if the risk premium on the stock is 7.5%?

(Multiple Choice)

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Question 69

A stock fund has a standard deviation of 18% and a bond fund has a standard deviation of 10%. The correlation of the two funds is .15. What is the approximate weight of the stock fund in the minimum variance portfolio?

(Multiple Choice)

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Question 70

You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock E. How will the weights be determined when you compute the rate of return for each economic state?

(Multiple Choice)

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Question 71

You have a portfolio which is comprised of 40% of Stock A and 60% of Stock B. What is the portfolio standard deviation? State of the Economy Probability 40\% 60\% Boom .10 20\% 14\% Normal .75 11\% 9\% Recegsion .15 -20\% -5\%

(Multiple Choice)

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Question 72

What is the variance of the expected returns on this stock? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .30 20\% Normal .70 10\%

(Multiple Choice)

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Question 73

A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio?

(Multiple Choice)

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Question 74

Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio?

(Multiple Choice)

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Question 75

What is the expected return on this stock given the following information? state of the Economy Probabllity Rate of of State of Economy Return if State Occurs Boom .15 22\% Normal .60 11\% Recession .25 -14\%

(Multiple Choice)

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Question 76

Which one of the following correlation coefficients can provide the greatest diversification benefit?

(Multiple Choice)

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Question 77

The risk-free rate is 2.20%. What is the expected risk premium on this stock given the following information? State of the Economy Probability Rate of Return if of State of Economy State occurs Boom .35 18\% Normal .65 98

(Multiple Choice)

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Question 78

Stock A has a standard deviation of 15% per year and Stock B has a standard deviation of 8% per year. The correlation between Stock A and Stock B is .40. You have a portfolio of these two stocks wherein Stock B has a portfolio weight of 40%. What is your portfolio variance?

(Multiple Choice)

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Question 79

Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation?

(Multiple Choice)

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Question 80

Exam 11: Diversification and Risky Asset Allocation

You own three securities. Security A has an expected return of 11% as compared to 14% for Security B and 9% for Security C. The expected inflation rate is 4% and the nominal risk-free rate is 5%. Which one of the following statements is correct?

You have a portfolio which is comprised of 70% of Stock A and 30% of Stock B. What is the expected rate of return on this portfolio?

A portfolio that belongs to the Markowitz efficient set of portfolios will have which one of the following characteristics? Assume the portfolios are comprised of five individual securities.

Stock A has a standard deviation of 15% per year and Stock B has a standard deviation of 21% per year. The correlation between Stock A and Stock B is .30. You have a portfolio of these two stocks wherein Stock B has a portfolio weight of 60%. What is your portfolio standard deviation?

What is the expected return on this stock given the following information? State of the Economy Probability E(R) Boom .7 12\% Recession .3 8\%

The risk-free rate is 3.0%. What is the expected risk premium on this security given the following information? State of the Economy Probability E(R) Boom .30 16\% Normal .50 8\% Recession .20 -12\%

A portfolio consists of the following securities. What is the portfolio weight of Stock C? Stock \#Shares PRS A 200 \ 48 B 150 \ 33 C 350 \ 21

What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset?

There is a 35% probability that a particular stock will earn a 16% return and a 65% probability that it will earn 10%. What is the risk-free rate if the risk premium on the stock is 7.5%?

A stock fund has a standard deviation of 18% and a bond fund has a standard deviation of 10%. The correlation of the two funds is .15. What is the approximate weight of the stock fund in the minimum variance portfolio?

You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock E. How will the weights be determined when you compute the rate of return for each economic state?

You have a portfolio which is comprised of 40% of Stock A and 60% of Stock B. What is the portfolio standard deviation? State of the Economy Probability 40\% 60\% Boom .10 20\% 14\% Normal .75 11\% 9\% Recegsion .15 -20\% -5\%

What is the variance of the expected returns on this stock? State of the Economy Probability of Rate of Return if State of Economy state occurs Boom .30 20\% Normal .70 10\%

A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio?

Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio?

What is the expected return on this stock given the following information? state of the Economy Probabllity Rate of of State of Economy Return if State Occurs Boom .15 22\% Normal .60 11\% Recession .25 -14\%

Which one of the following correlation coefficients can provide the greatest diversification benefit?

The risk-free rate is 2.20%. What is the expected risk premium on this stock given the following information? State of the Economy Probability Rate of Return if of State of Economy State occurs Boom .35 18\% Normal .65 98

Stock A has a standard deviation of 15% per year and Stock B has a standard deviation of 8% per year. The correlation between Stock A and Stock B is .40. You have a portfolio of these two stocks wherein Stock B has a portfolio weight of 40%. What is your portfolio variance?

Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation?

A Brief History of Risk and Return

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Overview of Security Tips

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Common Stock Valuation

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Return, Risk, and the Security Market Line

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