Question 1

The past five monthly returns for PG&E are 12.14 percent, -11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

Accepted Answer

A) 2.92 percent 
B) 1.21 percent 
C) -3.46 percent 
D) 3.17 percent 
A) 2.92 percent 
B) 1.21 percent 
C) -3.46 percent 
D) 3.17 percent

Question 2

A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct?

Accepted Answer

A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk. 
A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk.

Question 3

To find the percentage return of an investment:

Accepted Answer

A) multiply the dollar return by the investment's value at the beginning of the period. 
B) divide the dollar return by the investment's value at the beginning of the period. 
C) multiply the dollar return by the investment's value at the end of the period. 
D) divide the dollar return by the investment's value at the end of the period. 
A) multiply the dollar return by the investment's value at the beginning of the period. 
B) divide the dollar return by the investment's value at the beginning of the period. 
C) multiply the dollar return by the investment's value at the end of the period. 
D) divide the dollar return by the investment's value at the end of the period.

Question 4

JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?

Accepted Answer

A) 40 percent in Cisco and 60 percent in IBM 
B) 50 percent in Cisco and 50 percent in IBM 
C) 30 percent in Cisco and 70 percent in IBM 
D) Unable to determine with the data provided 
A) 40 percent in Cisco and 60 percent in IBM 
B) 50 percent in Cisco and 50 percent in IBM 
C) 30 percent in Cisco and 70 percent in IBM 
D) Unable to determine with the data provided

Question 5

Which of the following are investor diversification problems?

Accepted Answer

A) Many employees hold mostly their employer's stocks as investments. 
B) Many households hold relatively few individual stocks-the median is three. 
C) Investors seem to prefer local firms thereby limiting diversification opportunities. 
D) All of these are investor diversification problems. 
A) Many employees hold mostly their employer's stocks as investments. 
B) Many households hold relatively few individual stocks-the median is three. 
C) Investors seem to prefer local firms thereby limiting diversification opportunities. 
D) All of these are investor diversification problems.

Question 6

The following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. What is your portfolio percentage return? $\begin{array}{lcccc}
\hline \text { Company } & \text { Shares } & \begin{array}{c}
\text { Beginning } \
\text { of Year } \
\text { Price }
\end{array} & \begin{array}{c}
\text { Dividend } \
\text { per share }
\end{array} & \begin{array}{c}
\text { End of } \
\text { Year } \
\text { Price }
\end{array} \
\hline \text { W }& 100& \$ 25.00& \$ 1.00 & \$ 24.00 \
\text { P } & 200 &  \$ 14.00  & \$ 0.75 & \$ 15.25 \
\text { J } & 400  & \$ 8.00 & & \$ 10.00 \
\text { D } &200 & \$ 3.00 & \$ 0.50 & \$ 3.50 \
\hline
\end{array}$

Accepted Answer

A) 3.85 percent 
B) 11.54 percent 
C) 15.38 percent 
D) 17.58 percent 
A) 3.85 percent 
B) 11.54 percent 
C) 15.38 percent 
D) 17.58 percent

Question 7

Consider the risk-return relationship in T-bills during each decade since 1950. Given this data, which of the following statements is correct? $$\begin{array} { | c | c | } 
\hline \text { Decade } & \text { CoV } \
\hline 1950 \mathrm {~s} & 0.40 \
\hline 1960 \mathrm {~s} & 0.33 \
\hline 1970 \mathrm {~s} & 0.29 \
\hline 1980 \mathrm {~s} & 0.29 \
\hline 1990 \mathrm {~s} & 0.24 \
\hline 2000 \mathrm {~s} & 0.55 \
\hline
\end{array}$$

Accepted Answer

A) The best risk-return relationship was during the 1950s. 
B) The best risk-return relationship was during the 1990s. 
C) Since T-bills is backed by the full faith of the U.S. government, computing the risk-return relationship for them is invalid. 
D) None of these statements are correct. 
A) The best risk-return relationship was during the 1950s. 
B) The best risk-return relationship was during the 1990s. 
C) Since T-bills is backed by the full faith of the U.S. government, computing the risk-return relationship for them is invalid. 
D) None of these statements are correct.

Question 8

The past five monthly returns for Kohl's are 2.55 percent, -8.62 percent, -14.44 percent, -1.52 percent, and 4.75 percent. What is the average monthly return?

Accepted Answer

A) 2.21 percent 
B) 1.21 percent 
C) -3.46 percent 
D) -6.17 percent 
A) 2.21 percent 
B) 1.21 percent 
C) -3.46 percent 
D) -6.17 percent

Question 9

Which of the following statements is correct?

Accepted Answer

A) Uncorrelated assets have a correlation of -1.0. 
B) Most common stocks is positively correlated with each other because they is impacted by the economic factors. 
C) We can typically add many stocks together to fully eliminate the market risk in a portfolio. 
D) None of these statements are correct. 
A) Uncorrelated assets have a correlation of -1.0. 
B) Most common stocks is positively correlated with each other because they is impacted by the economic factors. 
C) We can typically add many stocks together to fully eliminate the market risk in a portfolio. 
D) None of these statements are correct.

Question 10

Which of the following is incorrect?

Accepted Answer

A) It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification. 
B) Adding long-term Treasury bonds to a stock portfolio will reduce the risk of the portfolio. 
C) The optimal portfolio is the one with the lowest amount of risk. 
D) All of these statements are correct. 
A) It is possible to combine assets that all move in the exact same fashion over time and gain the benefits of diversification. 
B) Adding long-term Treasury bonds to a stock portfolio will reduce the risk of the portfolio. 
C) The optimal portfolio is the one with the lowest amount of risk. 
D) All of these statements are correct.

Question 11

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, -1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

Accepted Answer

A) 1.876 percent 
B) 1.946 percent 
C) 2.046 percent 
D) 2.287 percent 
A) 1.876 percent 
B) 1.946 percent 
C) 2.046 percent 
D) 2.287 percent

Question 12

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Accepted Answer

A) Rail Haul, Poker-R-Us, Idol Staff 
B) Idol Staff, Rail Haul, Poker-R-Us 
C) Poker-R-Us, Idol Staff, Rail Haul 
D) Idol Staff, Poker-R-Us, Rail Haul 
A) Rail Haul, Poker-R-Us, Idol Staff 
B) Idol Staff, Rail Haul, Poker-R-Us 
C) Poker-R-Us, Idol Staff, Rail Haul 
D) Idol Staff, Poker-R-Us, Rail Haul

Question 13

If you own 400 shares of Air Line Inc. at $44.50, 500 shares of BuyRite at $52.90, and 100 shares of MotorCity at $9.25, what are the portfolio weights of each stock?

Accepted Answer

A) Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333 
B) Air Line = 0.40, BuyRite = 0.50, MotorCity = 0.10 
C) Air Line = 0.3940, BuyRite = 0.5855, MotorCity = 0.0205 
D) Air Line = 0.4173, BuyRite = 0.4960, MotorCity = 0.0867 
A) Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333 
B) Air Line = 0.40, BuyRite = 0.50, MotorCity = 0.10 
C) Air Line = 0.3940, BuyRite = 0.5855, MotorCity = 0.0205 
D) Air Line = 0.4173, BuyRite = 0.4960, MotorCity = 0.0867

Question 14

Consider the characteristics of the following three stocks: $$\begin{array} { l l l } 
\hline & \begin{array} { l } 
\text { Expected } \
\text { Return }
\end{array} & \begin{array} { l } 
\text { Standard } \
\text { Deviation }
\end{array} \
\hline \begin{array} { l } 
\text { Thumb } \
\text { Devices }
\end{array} & 13 \% & 23 \% \
\text { Air Comfort } & 10 \% & 19 \% \
\text { Sport Garb } & 10 \% & 17 \% \
\hline
\end{array}$$ The correlation between Thumb Devices and Air Comfort is -0.12. The correlation between Thumb Devices and Sport Garb is 0.89. The correlation between Air Comfort and Sport Garb is -0.85. If you can pick only two stocks for your portfolio, which would you pick? Why?

Accepted Answer

A) Combine Thumb Devices and Sport Garb because they have a high correlation. 
B) Combine Thumb Devices and Air Comfort because of high standard deviations. 
C) Combine Air Comfort and Sport Garb due to negative correlation. 
D) Combine Thumb Devices and Sport Garb because Thumb Devices has the highest return and Sport Garb has the lowest standard deviation. 
A) Combine Thumb Devices and Sport Garb because they have a high correlation. 
B) Combine Thumb Devices and Air Comfort because of high standard deviations. 
C) Combine Air Comfort and Sport Garb due to negative correlation. 
D) Combine Thumb Devices and Sport Garb because Thumb Devices has the highest return and Sport Garb has the lowest standard deviation.

Question 15

Which of these is a measure summarizing the overall past performance of an investment?

Accepted Answer

A) Average return 
B) Dollar return 
C) Market return 
D) Percentage return 
A) Average return 
B) Dollar return 
C) Market return 
D) Percentage return

Question 16

Which of the following statements is correct?

Accepted Answer

A) Stocks and long-term Treasury bonds is highly positively correlated. 
B) Stocks and Treasury bills is highly positively correlated. 
C) Stocks, long-term Treasury bonds, and Treasury bills is all highly correlated. 
D) None of these statements are correct. 
A) Stocks and long-term Treasury bonds is highly positively correlated. 
B) Stocks and Treasury bills is highly positively correlated. 
C) Stocks, long-term Treasury bonds, and Treasury bills is all highly correlated. 
D) None of these statements are correct.

Question 17

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Accepted Answer

A) Rail Haul, Idol Staff, Poker-R-Us 
B) Idol Staff, Rail Haul, Poker-R-Us 
C) Poker-R-Us, Idol Staff, Rail Haul 
D) Idol Staff, Poker-R-Us, Rail Haul 
A) Rail Haul, Idol Staff, Poker-R-Us 
B) Idol Staff, Rail Haul, Poker-R-Us 
C) Poker-R-Us, Idol Staff, Rail Haul 
D) Idol Staff, Poker-R-Us, Rail Haul

Question 18

A stock has an expected return of 12 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent. Given this data, which of the following statements is correct?

Accepted Answer

A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk. 
A) The two assets have the same coefficient of variation. 
B) The stock investment has a better risk-return trade-off. 
C) The bond investment has a better risk-return trade-off. 
D) Both investments have the same diversifiable risk.

Question 19

Which of the following statements is correct regarding total risk?

Accepted Answer

A) A conglomerate will have more total risk than a firm that has one line of business. 
B) All firms have about the same total risk because they is all exposed to the same market risk. 
C) Total risk can be quantified by measuring the covariance between the firm and the overall market. 
D) None of these statements are correct. 
A) A conglomerate will have more total risk than a firm that has one line of business. 
B) All firms have about the same total risk because they is all exposed to the same market risk. 
C) Total risk can be quantified by measuring the covariance between the firm and the overall market. 
D) None of these statements are correct.

Question 20

Which of the following is the correct ranking from least risky to most risky?

Accepted Answer

A) Long-term Treasury bonds, stocks, Treasury bills 
B) Treasury bills, long-term Treasury bonds, stocks 
C) Stocks, long-term Treasury bond, Treasury bills 
D) Stocks, Treasury bills, long-term Treasury bonds 
A) Long-term Treasury bonds, stocks, Treasury bills 
B) Treasury bills, long-term Treasury bonds, stocks 
C) Stocks, long-term Treasury bond, Treasury bills 
D) Stocks, Treasury bills, long-term Treasury bonds

The past five monthly returns for PG&E are 12.14 percent, -11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct?

To find the percentage return of an investment:

JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?

Which of the following are investor diversification problems?

Consider the risk-return relationship in T-bills during each decade since 1950. Given this data, which of the following statements is correct? Decade CoV 1950 0.40 1960 0.33 1970 0.29 1980 0.29 1990 0.24 2000 0.55

The past five monthly returns for Kohl's are 2.55 percent, -8.62 percent, -14.44 percent, -1.52 percent, and 4.75 percent. What is the average monthly return?

Which of the following statements is correct?

Which of the following is incorrect?

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, -1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

If you own 400 shares of Air Line Inc. at $44.50, 500 shares of BuyRite at $52.90, and 100 shares of MotorCity at $9.25, what are the portfolio weights of each stock?

Which of these is a measure summarizing the overall past performance of an investment?

Which of the following statements is correct?

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

A stock has an expected return of 12 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent. Given this data, which of the following statements is correct?

Which of the following statements is correct regarding total risk?

Which of the following is the correct ranking from least risky to most risky?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters

Exam 9: Characterizing Risk and Return

The past five monthly returns for PG&E are 12.14 percent, -11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

A stock has an expected return of 15 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 11 percent. Given this data, which of the following statements is correct?

To find the percentage return of an investment:

JoJo's portfolio's return is 12 percent. She is invested in Cisco and IBM which had returns of 15 percent and 9 percent respectively. What percentage of JoJo's assets are invested in each firm?

Which of the following are investor diversification problems?

Consider the risk-return relationship in T-bills during each decade since 1950. Given this data, which of the following statements is correct? Decade CoV 1950 0.40 1960 0.33 1970 0.29 1980 0.29 1990 0.24 2000 0.55

The past five monthly returns for Kohl's are 2.55 percent, -8.62 percent, -14.44 percent, -1.52 percent, and 4.75 percent. What is the average monthly return?

Which of the following statements is correct?

Which of the following is incorrect?

Compute the standard deviation of the five monthly returns for PG&E: 1.25 percent, -1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent.

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

If you own 400 shares of Air Line Inc. at $44.50, 500 shares of BuyRite at $52.90, and 100 shares of MotorCity at $9.25, what are the portfolio weights of each stock?

Which of these is a measure summarizing the overall past performance of an investment?

Which of the following statements is correct?

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

A stock has an expected return of 12 percent and a standard deviation of 20 percent. Long-term Treasury bonds have an expected return of 9 percent and a standard deviation of 15 percent. Given this data, which of the following statements is correct?

Which of the following statements is correct regarding total risk?

Which of the following is the correct ranking from least risky to most risky?

Introduction to Financial Management

Reviewing Financial Statements

Analyzing Financial Statements

Time Value of Money 1: Analyzing Single Cash Flows

Time Value of Money 2: Analyzing Annuity Cash Flows

Understanding Financial Markets and Institutions

Valuing Bonds

Valuing Stocks

Estimating Risk and Return

Calculating the Cost of Capital

Estimating Cash Flows on Capital Budgeting Projects

Weighing Net Present Value and Other Capital Budgeting Criteria

Working Capital Management and Policies

Filters