Question 1

Which of the following most closely defines the term risk in finance?

Accepted Answer

A)  Knowing that you will lose money on an investment 
B)  A decision in which the potential outcomes are known with certainty 
C)  A measure of the variability of cash flows 
D)  A situation in which the required return on an asset equals its expected return 
E)  A measure of the magnitude of cash flows 
A)  Knowing that you will lose money on an investment 
B)  A decision in which the potential outcomes are known with certainty 
C)  A measure of the variability of cash flows 
D)  A situation in which the required return on an asset equals its expected return 
E)  A measure of the magnitude of cash flows

Question 2

If Microsoft stockholders expect either a 25% return or a 2% return,each with a 50% probability,and Apple Computer shareholders expect a 10% return with certainty,what is the expected return from a portfolio comprised of equal amounts of stock from both firms?

Accepted Answer

A)  37.00% 
B)  23.50% 
C)  11.75% 
D)  10.75% 
E)  12.33% 
A)  37.00% 
B)  23.50% 
C)  11.75% 
D)  10.75% 
E)  12.33%

Question 3

A company has a 40% probability of earning 20%,a 40% probability of earning 10%,and a 20% probability of earning 5%.The standard deviation is:

Accepted Answer

A)  13.0% 
B)  36.0% 
C)  37.0% 
D)  6.0% 
E)  15.0% 
A)  13.0% 
B)  36.0% 
C)  37.0% 
D)  6.0% 
E)  15.0%

Question 4

After taking a reading-week trip to the Dominican Republic,you are now hooked on Cuban cigars.You decide to build a stock portfolio with two different cigar companies:
Altadis'Behike(Altadis)
Gurkha'sHis Majesty's Reserve (Gurkhas)
You purchase 1,000 Altadis' shares,each at a price of $45.You also purchase 1,200 Gurkha's shares,each at a price of $65.Calculate Altadis' portfolio weight.

Accepted Answer

A)  0.316 
B)  0.366 
C)  0.386 
D)  0.416 
E)  0.426 
A)  0.316 
B)  0.366 
C)  0.386 
D)  0.416 
E)  0.426

Question 5

Consider the following bet: heads I pay you a dollar,tails you pay me a dollar.What is the expected payoff (return)of this bet? (Assume a fair coin.)

Accepted Answer

A)  -$0.50 
B)  $1.00 
C)  $0 
D)  $0.50 
E)  -$1.00 
A)  -$0.50 
B)  $1.00 
C)  $0 
D)  $0.50 
E)  -$1.00

Question 6

You bought 200 shares of Microsoft at $50 per share,100 shares of IBM for $100 a share and 300 shares of Amazon.com for $25 per share.What is the portfolio weight on the Amazon.com holding?

Accepted Answer

A)  0.25 
B)  0.26 
C)  0.27 
D)  0.28 
E)  0.29 
A)  0.25 
B)  0.26 
C)  0.27 
D)  0.28 
E)  0.29

Which of the following most closely defines the term risk in finance?

If Microsoft stockholders expect either a 25% return or a 2% return,each with a 50% probability,and Apple Computer shareholders expect a 10% return with certainty,what is the expected return from a portfolio comprised of equal amounts of stock from both firms?

A company has a 40% probability of earning 20%,a 40% probability of earning 10%,and a 20% probability of earning 5%.The standard deviation is:

Consider the following bet: heads I pay you a dollar,tails you pay me a dollar.What is the expected payoff (return)of this bet? (Assume a fair coin.)

You bought 200 shares of Microsoft at $50 per share,100 shares of IBM for $100 a share and 300 shares of Amazon.com for $25 per share.What is the portfolio weight on the Amazon.com holding?

Overview of Finance

Financial Statements and Ratio Analysis

Time Value of Money - Introduction

Time Value of Money - Streams and Valuations

Portfolio Theory

Interest Rates and Bond Valuation

Stock Valuation and Market Efficiency

Capital Budgeting Techniques

Capital Budgeting - Cash Flows

Cost of Capital

Capital Structure

Dividends, repurchases, and Splits

Financial Planning

The Management of Working Capital

International Finance

Filters

Exam 5: Risk and Return - Introduction

Which of the following most closely defines the term risk in finance?

If Microsoft stockholders expect either a 25% return or a 2% return,each with a 50% probability,and Apple Computer shareholders expect a 10% return with certainty,what is the expected return from a portfolio comprised of equal amounts of stock from both firms?

A company has a 40% probability of earning 20%,a 40% probability of earning 10%,and a 20% probability of earning 5%.The standard deviation is:

Consider the following bet: heads I pay you a dollar,tails you pay me a dollar.What is the expected payoff (return)of this bet? (Assume a fair coin.)

You bought 200 shares of Microsoft at $50 per share,100 shares of IBM for $100 a share and 300 shares of Amazon.com for $25 per share.What is the portfolio weight on the Amazon.com holding?

Overview of Finance

Financial Statements and Ratio Analysis

Time Value of Money - Introduction

Time Value of Money - Streams and Valuations

Portfolio Theory

Interest Rates and Bond Valuation

Stock Valuation and Market Efficiency

Capital Budgeting Techniques

Capital Budgeting - Cash Flows

Cost of Capital

Capital Structure

Dividends, repurchases, and Splits

Financial Planning

The Management of Working Capital

International Finance

Filters