Exam 8: Risk, return, and Portfolio Theory

Christopher Robin purchased 500 shares of Pooh Inc.at $48 per share and 1,000 shares of Piglet Inc.at $35 per share one year ago.Pooh and Piglet paid quarterly dividends of $0.80 and $0.50 per share,respectively,during the year.One year later,he sold both securities at $45 per share.The two securities have a correlation of 0.6,and the standard deviations of Pooh and Piglet are 15 percent and 12 percent,respectively. A) What fraction of Christopher Robin's portfolio is invested in Pooh? What fraction is invested in Piglet? B) What are the income yields of Pooh, Piglet, and the portfolio? C) What are the capital gain yields of Pooh, Piglet, and the portfolio? D) What are the total returns of Pooh, Piglet, and the portfolio? E) What is the standard deviation of the portfolio?

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?

Suppose you observed the following data on two securities: Mars and Venus: You short sold 200 shares of Mars at $20 per share and purchased 400 shares of Venus at $25 per share to increase the possible return on the portfolio.The correlation between the securities is 0.30.What is the standard deviation of the portfolio?

Define and discuss expected return with regard to individual securities and a portfolio as a whole.

Discuss the validity of the following statement: "diversification benefits decreased because correlation between stocks increased."

What is the standard deviation of returns on a stock priced today at $10 that has a 25 percent probability of increasing to $13,a 50 percent probability of increasing to $12,a 15 percent probability of increasing by 5 percent,and a 10 percent probability of decreasing to $ 7?

The expected returns for Bumpy Inc.and Bouncy Inc.are 20 percent and 8 percent,respectively.The standard deviation is 35 percent for Bumpy and 16 percent for Bouncy.What is the portfolio standard deviation if 45 percent of the portfolio is in Bumpy and the two securities have perfect negative correlation?

Which of the following statements is FALSE?

Which of the following is TRUE?

Your portfolio that has $500 invested in Stock A and $1,500 invested in Stock B.If the expected returns on Stock A and Stock B are 7% and 23%,respectively,what is the portfolio return?

Stocks A and B have a correlation of +1.If stock A went from $10 to $12 over the past month,what is the price of stock B,if its price one month ago was $5?

Suppose you own a portfolio that has 500 shares of SHC Company and 1,000 shares of MHC Company.The stock prices of SHC and MHC at the time of purchase were $40 and $25 per share,respectively.Given the following forecasts,what is the expected return for the portfolio?

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

A portfolio consists of two securities: Nervy and Goofy.The expected return of Nervy is 12 percent with a standard deviation of 15 percent.The expected return of Goofy is 9 percent with a standard deviation of 10 percent.What is the portfolio standard deviation if 35 percent of the portfolio is in Nervy and the two securities have a correlation of 0.6?

If the closing price of Stock Y was $38.63 on Friday,which was after it had earned daily returns of 8 percent,23 percent,-30 percent,20 percent,and -5 percent during the week (Monday to Friday),what was the opening price of Stock Y on Monday?

Cinderella plans to form a portfolio with two securities: Jaq and Gus.The correlation between the two securities is -1.Given the following forecasts,what are the weights in Jaq and Gus that will set the standard deviation of the portfolio equal to zero?

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:

What are the components of total return and total risk?

Suppose you own 100 shares of CyberChase Corporation and 200 shares of NetSurfer Corporation.At the time of purchase,the stocks of CyberChase and NetSurfer were trading at $25 and $15 per share,respectively.What is the expected value of the portfolio if CyberChase has an expected return of 8 percent and NetSurfer has an expected return of 13 percent?

Which of the following statements is FALSE?