Exam 8: Risk, Return, and Portfolio Theory

A stock selling for $20.00 today and expected to have an income (dividend)yield of 3% and a capital gain yield of 5% in one year will increase in price to sell at:

In a two-security portfolio, 25% is invested in Security A and the remainder in Security B.If the portfolio standard deviation is 12%, and the individual standard deviations for Security A and Security B are 22% and 7%, respectively, what is the covariance of the returns on Securities A and B?

Which of the following is a TRUE statement of modern portfolio theory?

Sandy paid $47.38 for one share of EMH Company one year ago.The stock paid four quarterly dividends of $1.00 each during the year, and is selling for $49.50 now.What are the income yield and capital gain yield for EMH over the past year?

Discuss the difference between expected returns using subjective probabilities and expected returns based on historical values.

Which of the following is NOT a correct statement about income yield?

A portfolio is composed of 100 shares (priced at $22/share)of Mensa Ltd.and 200 shares of Einstein Ltd.(priced at $15/share).What is the expected value of the portfolio if Mensa has an expected return of 14.0% and Einstein has an expected return of 8.0%?

Suppose you have a total return of 8.0% on 500 shares of XYZ Company that you bought for $9,590 last year.XYZ paid four equal quarterly dividends during the year.What would be the quarterly dividend if the current stock price is $18.64 per share?

Connie bought 400 shares of ABC Company for $9,288 one year ago.ABC paid a quarterly dividend of $0.40 per share throughout the year, and is currently trading at $24.85 per share.What are the income yield, capital gain yield, and total return for Connie's investment?

Use the following three statements to answer this question: I.When And we know the return on Security A, we can predict the return on Security B with certainty. II.Generally, security returns display positive correlations with one another however they are less than one; this is because all securities tend not to follow the movements of the overall market. III.Any value of correlation less than +1 provides a possibility of diversification.

Which of the following is NOT a correct statement?

What is the expected return on a stock that has a 15.0% probability of a 35.0% return, a 20.0% probability of a 25.0% return, a 50.0% probability of a 15.0% return, and a 15.0% probability of a -20.0% return?

A year ago, you bought some shares of CIA Company, which pays equal quarterly dividends.The income yield and the capital gain yield are 4.38 percent and 9.5 percent, respectively.The current price of CIA is $18.What was the quarterly dividend that CIA paid during the year?

Non-systematic risk is also called:

Given the following forecasts for a portfolio that has $1,500 invested in Stock A and $4,500 invested in Stock B, what is the correlation between the two stocks?

You are contemplating investing in two stocks ABC and XYZ that have an expected return of 12.0% and 9.0%, respectively.If your target expected return is 10.0%, what would be the weight in ABC?

On January 1, you forecasted that there is a 45.0% chance that the price of Edward Bear Inc.shares will be $95 in one year while there is a 55.0% chance that the share price will be $35.Six months later, you revised the estimated probability to 25.0% chance of the high state (stock price of $95).If the market agrees with your revised forecasts, what is the expected change in share price from January 1 to July 1? Assume the discount rate is zero.

A share of Oedipus Construction Company was selling for $32.16 one year ago.The stock paid an annual dividend of $0.25 during the year.What is the capital gain yield if the current share price is $34.02?

What is the correlation between stocks X and Z?

Risk-Return in a Portfolio Question: The following table presents some statistics about the returns of three assets, Assets A, B, and C, respectively, under three possible scenarios (Boom, Normal, and Recession).The expected probabilities of each state are also specified in the table. a)Complete the blanks in the above table.Show your calculations. b)Suppose you wish to combine Assets A and B in order to create a portfolio that has the same total risk as Asset C.What weight should you invest in Asset A? In Asset B?