Exam 8: Risk, Return, and Portfolio Theory

You have observed the following for Montreal Smoked Meat Ltd.: What are the arithmetic and geometric average weekly returns over the 6-week period ended June 15, 2016?

You have given the following forecasts for the economy and Stock A: (1)the probability of having a recession next year is 30.0%, a normal economy is 55.0%, and an expansion is 15.0%, and (2)the price of Stock A will be $9 if the economy is in recession, $15 if the economy is normal, and $18 if the economy is in expansion.What is the ex ante standard deviation of Stock A's returns if it is currently selling for $12?

Which of the following is TRUE about diversification?

Given the following forecasts, what is the expected return for a portfolio that has $1,500 invested in Stock A and $4,500 invested in Stock B?

Which of the following is a FALSE statement of the correlation coefficient?

Given the information in the following table, what is the expected return of the security?

The expected returns for Hickory Inc.and Dickory Inc.are 8.0% and 13.0%, respectively.The standard deviation is 12.0% for Hickory and 18.0% for Dickory.What is the portfolio standard deviation if 40.0% of the portfolio is in Hickory and there is no relationship between the returns on the two securities?

Suppose you own a two-security portfolio.You have 35.0% of your money invested in Security X and the remainder in Security Y.The standard deviations of Securities X and Y are 10.0% and 15.0%, respectively.What is the correlation between the two securities if the portfolio variance is 0.013225?

If a company's stock price decreases due to the poor sales in one of its product lines, this is an example of:

Does diversification always reduce the overall risk?

La Maudite Ltd.'s annual returns for the past five years were: 11.5%, 18%, -12%, -16.5%, and 28%.What are the arithmetic and geometric average annual returns for La Maudite over the five-year period?

Which of the following is NOT a correct statement?

Baxter Inc.'s annual returns for the past four years were: 2.75%, -1.8%, 7.2%, and 6.5%.What are the arithmetic and geometric average annual returns for Baxter over the four-year period?

The following table shows the closing prices and daily returns of Toronto Skates Inc.over a week: Calculate the weekly geometric mean (GM)and the arithmetic mean (AM)returns of Toronto Skates Inc.(your answer should be four decimals, margin of error is +/- 0.0050%)

Which of the following is NOT a true statement?

Which of the following is a FALSE statement?

For the following efficient frontier, the expected return of the minimum variance portfolio is:

A portfolio consists of three securities: Treachery (T), Sleazy (S), and Felony (F).The expected returns for Treachery, Sleazy, and Felony are 10.0%, 8.0%, and 16.0%, respectively.The standard deviation is 15.0% for Treachery, 20.0% for Sleazy, and 25.0% for Felony.The covariance of the returns on the three securities is: COVTS = 0.0144, COVTF = 0.0084, and COVSF = 0.03.What is the portfolio standard deviation if 20.0% of the portfolio is in Treachery and 35.0% is in Sleazy?

The expected returns for ABC Company and XYZ Company are 12.0% and 9.0%, respectively.The standard deviation is 20.0% for ABC and 15.0% for XYZ.What is the portfolio standard deviation if one-third of the portfolio is in ABC and the two securities have perfect positive correlation?

A portfolio consists of two securities: Nervy and Goofy.The expected return of Nervy is 12.0% with a standard deviation of 15.0%.The expected return of Goofy is 9.0% with a standard deviation of 10.0%.What is the portfolio standard deviation if 35% of the portfolio is in Nervy and the two securities have a correlation of 0.6?