Question 1

Which of the following statements is FALSE?

Accepted Answer

A)  Risk measures the volatility of the returns of the asset. 
B)  Risk measures are concerned only with the negative performance of the asset. 
C)  The standard deviation is not the only measure of risk. 
D)  Risk and return are inversely related. 
A)  Risk measures the volatility of the returns of the asset. 
B)  Risk measures are concerned only with the negative performance of the asset. 
C)  The standard deviation is not the only measure of risk. 
D)  Risk and return are inversely related. D

Question 2

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

Accepted Answer

A)  11.25% 
B)  12.50% 
C)  15.75% 
D)  25.00% 
A)  11.25% 
B)  12.50% 
C)  15.75% 
D)  25.00% A

Question 3

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier:   
Which of the following portfolios (or combinations)are likely to be preferred by a risk-averse investor? Which of the following portfolios (or combinations)are likely to be preferred by a risk-loving investor? Explain your reasoning.

Accepted Answer

Regardless of the risk-preferences of the investor,she will only be interested in portfolios B and C.A is inefficient and D is unattainable.
The risk-averse investor will tend to prefer less risk so is more likely to choose C; while the risk-loving investor is willing to take more risk to get more return so is more likely to choose B.

Question 4

Does diversification always reduce the overall risk?

Accepted Answer

As long as the individual securities are

Question 5

The income yield and capital gain yield of a stock are 4.90 percent and 7.37 percent,respectively.The stock paid a quarterly dividend of $0.65 per share during the year.What should the stock sell for today?

Accepted Answer

A)  $35.28 
B)  $37.01 
C)  $53.06 
D)  $56.97 
A)  $35.28 
B)  $37.01 
C)  $53.06 
D)  $56.97

Question 6

Indiana Jones intends to form a portfolio with two securities: Virtual and Real.Virtual has an expected return of 25 percent with a standard deviation of 5 percent.Real has an expected return of 12 percent with a standard deviation of 16 percent.The correlation between the two securities is 0.2.What is the portfolio standard deviation if the portfolio has an expected return of 20 percent?

Accepted Answer

A)  0.55% 
B)  1.08% 
C)  7.41% 
D)  10.40% 
A)  0.55% 
B)  1.08% 
C)  7.41% 
D)  10.40%

Question 7

Given the following forecasts,what is the expected return for a portfolio that has $2,200 invested in Stock X,$3,600 in Stock Y,and $4,200 invested in Stock Z?

Accepted Answer

A)  10.62% 
B)  14.82% 
C)  30.50% 
D)  33.25% 
A)  10.62% 
B)  14.82% 
C)  30.50% 
D)  33.25%

Question 8

In a two-security portfolio 25% of your money is invested in Security X and the remainder in Security Y.If the standard deviations of Securities X and Y are 22 % and 7 %,respectively,and the portfolio variance is 0.01155625,what is the correlation between the two securities?

Accepted Answer

A)  -0.003275 
B)  0.03275 
C)  1.0 
D)  -1.0 
A)  -0.003275 
B)  0.03275 
C)  1.0 
D)  -1.0

Question 9

In question 18 above,what is the income yield (dividend yield)for the stock of Oedipus Construction Company?

Accepted Answer

A)  0.945% 
B)  0.578% 
C)  0.777% 
D)  0.546% 
A)  0.945% 
B)  0.578% 
C)  0.777% 
D)  0.546%

Question 10

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier:   Which of the following portfolios are efficient?

Accepted Answer

A)  A and C only 
B)  B and D only 
C)  B only 
D)  All are efficient 
A)  A and C only 
B)  B and D only 
C)  B only 
D)  All are efficient

Question 11

A stock selling for $12.00 today and expected to pay a $1.50 dividend and have a capital gain of 5% in one year will increase in price to sell at:

Accepted Answer

A)  $ 13.50 
B)  $ 14.10 
C)  $ 12.60 
D)  $ 15.18 
A)  $ 13.50 
B)  $ 14.10 
C)  $ 12.60 
D)  $ 15.18

Question 12

For the following efficient frontier,the standard deviation of the minimum variance portfolio is:

Accepted Answer

A)  <2.5% 
B)  Between 2.5% and 3.5% 
C)  Between 3.5% and 4.5% 
D)  5.0% 
A)  <2.5% 
B)  Between 2.5% and 3.5% 
C)  Between 3.5% and 4.5% 
D)  5.0%

Question 13

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

Accepted Answer

A)  5.0% 
A)  5.0%

Question 14

Which of the following is a FALSE statement?

Accepted Answer

A)  Paper losses are capital losses that people accept as losses before they actually sell and realize them. 
B)  A day trader is someone who buys and sells based on intraday price movements. 
C)  Mark to market refers to carrying securities at the current market value regardless of whether they are sold or not. 
D)  The total return including the paper gains and losses over the relevant investment horizon reflects the economic value of past investment decisions. 
A)  Paper losses are capital losses that people accept as losses before they actually sell and realize them. 
B)  A day trader is someone who buys and sells based on intraday price movements. 
C)  Mark to market refers to carrying securities at the current market value regardless of whether they are sold or not. 
D)  The total return including the paper gains and losses over the relevant investment horizon reflects the economic value of past investment decisions.

Question 15

Suppose you are given the following forecasts for the economy and Sneezy Company at the beginning of the year:
   
During the year,you observed the following:
   
A) Calculate the ex-ante expected return
B) Calculate the ex-ante standard deviation of returns
C) Calculate the ex-post average return
D) Calculate the ex-post standard deviation of returns

Accepted Answer

A)The ex-ante expected return = 20%*20%

Question 16

No benefits of diversification with two stocks occur when   is:

Accepted Answer

A)  0 
B)  1 
C)  -1 
D)  0.52 
A)  0 
B)  1 
C)  -1 
D)  0.52

Question 17

Define the term "risk" and explain how it is related to the expected return.

Accepted Answer

Risk is the probability that t

Question 18

A portfolio consists of three securities: Treachery (T),Sleazy (S),and Felony (F).The expected returns for Treachery,Sleazy,and Felony are 10 percent,8 percent,and 16 percent,respectively.The standard deviation is 15 percent for Treachery,20 percent for Sleazy,and 25 percent 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 percent of the portfolio is in Treachery and 35 percent is in Sleazy?

Accepted Answer

A)  17.73% 
B)  13.91% 
C)  3.14% 
D)  1.93% 
A)  17.73% 
B)  13.91% 
C)  3.14% 
D)  1.93%

Question 19

Use the following three statements to answer this question:

Accepted Answer

A)  I is correct, II is incorrect, III is correct. 
B)  I is incorrect, II is correct, III is correct. 
C)  I and II are correct, III is incorrect. 
D)  I, II and II are incorrect.
I.There will be benefits from diversification as long as  
)
II.As long as  
,an equally weighted portfolio would be risk-free.
III.Diversification can never eliminate the total risk of the portfolio. 
A)  I is correct, II is incorrect, III is correct. 
B)  I is incorrect, II is correct, III is correct. 
C)  I and II are correct, III is incorrect. 
D)  I, II and II are incorrect.
I.There will be benefits from diversification as long as  
)
II.As long as  
,an equally weighted portfolio would be risk-free.
III.Diversification can never eliminate the total risk of the portfolio.

Question 20

Suppose you own a two-security portfolio.You have 35 percent of your money invested in Security X and the remainder in Security Y.The standard deviations of Securities X and Y are 10 percent and 15 percent,respectively.What is the correlation between the two securities if the portfolio variance is 0.013225?

Accepted Answer

A)  0.0055 
B)  0.0137 
C)  0.3654 
D)  0.9148 
A)  0.0055 
B)  0.0137 
C)  0.3654 
D)  0.9148

Which of the following statements is FALSE?

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

Does diversification always reduce the overall risk?

The income yield and capital gain yield of a stock are 4.90 percent and 7.37 percent,respectively.The stock paid a quarterly dividend of $0.65 per share during the year.What should the stock sell for today?

Given the following forecasts,what is the expected return for a portfolio that has $2,200 invested in Stock X,$3,600 in Stock Y,and $4,200 invested in Stock Z?

In a two-security portfolio 25% of your money is invested in Security X and the remainder in Security Y.If the standard deviations of Securities X and Y are 22 % and 7 %,respectively,and the portfolio variance is 0.01155625,what is the correlation between the two securities?

In question 18 above,what is the income yield (dividend yield)for the stock of Oedipus Construction Company?

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier: Which of the following portfolios are efficient?

A stock selling for $12.00 today and expected to pay a $1.50 dividend and have a capital gain of 5% in one year will increase in price to sell at:

For the following efficient frontier,the standard deviation of the minimum variance portfolio is:

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

Which of the following is a FALSE statement?

No benefits of diversification with two stocks occur when is:

Define the term "risk" and explain how it is related to the expected return.

Use the following three statements to answer this question:

An Introduction to Finance

Business Corporatefinance

Financial Statements

Financial Statement Analysis and Forecasting

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards,futures,and Swaps

Options

Capital Budgeting, risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

Filters

Exam 8: Risk, return, and Portfolio Theory

Which of the following statements is FALSE?

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

Does diversification always reduce the overall risk?

The income yield and capital gain yield of a stock are 4.90 percent and 7.37 percent,respectively.The stock paid a quarterly dividend of $0.65 per share during the year.What should the stock sell for today?

Given the following forecasts,what is the expected return for a portfolio that has $2,200 invested in Stock X,$3,600 in Stock Y,and $4,200 invested in Stock Z?

In a two-security portfolio 25% of your money is invested in Security X and the remainder in Security Y.If the standard deviations of Securities X and Y are 22 % and 7 %,respectively,and the portfolio variance is 0.01155625,what is the correlation between the two securities?

In question 18 above,what is the income yield (dividend yield)for the stock of Oedipus Construction Company?

The standard deviation and expected returns for 4 portfolios (A,B,C,and D)are graphed on the following efficient frontier: Which of the following portfolios are efficient?

A stock selling for $12.00 today and expected to pay a $1.50 dividend and have a capital gain of 5% in one year will increase in price to sell at:

For the following efficient frontier,the standard deviation of the minimum variance portfolio is:

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

Which of the following is a FALSE statement?

No benefits of diversification with two stocks occur when is:

Define the term "risk" and explain how it is related to the expected return.

Use the following three statements to answer this question:

An Introduction to Finance

Business Corporatefinance

Financial Statements

Financial Statement Analysis and Forecasting

Time Value of Money

Bond Valuation and Interest Rates

Equity Valuation

The Capital Asset Pricing Model Capm

Market Efficiency

Forwards,futures,and Swaps

Options

Capital Budgeting, risk Considerations, and Other Special Issues

Cash Flow Estimation and Capital Budgeting Decisions

Mergers and Acquisitions

Leasing

Investment Banking and Securities Law

Debt Instruments

Equity and Hybrid Instruments

Cost of Capital

Capital Structure Decisions

Dividend Policy

Working Capital Management: General Issues

Working Capital Management: Current Assets and Current Liabilities

Filters