Question 1

The covariance between the IS and DS returns is:

Accepted Answer

A)  .00187. 
B)  .00240. 
C)  .00028. 
D)  .000056. 
A)  .00187. 
B)  .00240. 
C)  .00028. 
D)  .000056.

Question 2

The total number of variance and covariance terms in portfolio is N2.How many of these would be (including non-unique)covariances?

Accepted Answer

A)  N. 
B)  N2. 
C)  N2 - N. 
D)  N2 - N/2. 
A)  N. 
B)  N2. 
C)  N2 - N. 
D)  N2 - N/2.

Question 3

Given the following information on 3 stocks:
C. Which stocks would you recommend purchasing?
   Indifferent on A as .1903 _.19.
Would buy B as .15 > .1473.
Would not buy C as .09 < .0923.

Accepted Answer

@#IMG-DLM& Using the CAPM,calculate the expected r

Question 4

If IS and DS are combined in a portfolio with 50% invested in each,the expected return and risk would be:

Accepted Answer

A)  5.625%; 37.2%. 
B)  4.5%; 5.48%. 
C)  8.0%; 8.2%. 
D)  5.0%; 0%. 
E)  4.5%; 0%. 
A)  5.625%; 37.2%. 
B)  4.5%; 5.48%. 
C)  8.0%; 8.2%. 
D)  5.0%; 0%. 
E)  4.5%; 0%.

Question 5

Covariance measures the interrelationship between two securities in terms of:

Accepted Answer

A)  both expected return and direction of return movement. 
B)  both size and direction of return movement. 
C)  the standard deviation of returns. 
D)  both expected return and size of return movements. 
E)  the correlations of returns. 
A)  both expected return and direction of return movement. 
B)  both size and direction of return movement. 
C)  the standard deviation of returns. 
D)  both expected return and size of return movements. 
E)  the correlations of returns.

Question 6

Why are some risks diversifiable and some nondiversifiable? Give an example of each.

Accepted Answer

A reasonable answer would,at a minimum,e

Question 7

The diversification effect of a portfolio of two stocks:

Accepted Answer

A)  increases as the correlation between the stocks declines. 
B)  increases as the correlation between the stocks rises. 
C)  decreases as the correlation between the stocks rises. 
D)  Both increases as the correlation between the stocks declines; and decreases as the correlation between the stocks rises. 
A)  increases as the correlation between the stocks declines. 
B)  increases as the correlation between the stocks rises. 
C)  decreases as the correlation between the stocks rises. 
D)  Both increases as the correlation between the stocks declines; and decreases as the correlation between the stocks rises.

Question 8

The means of IS and DS are:

Accepted Answer

A)  4.4%; 4.6%. 
B)  5.5%; 5.75%. 
C)  10%; 6%. 
D)  4%; 6%. 
A)  4.4%; 4.6%. 
B)  5.5%; 5.75%. 
C)  10%; 6%. 
D)  4%; 6%.

Question 9

Returns for the IC Company and for the S&P 500 Index over the previous 4-year period are given below:

Accepted Answer

@#IMG-DLM& What are the average returns on IC and

Question 10

If the correlation between two stocks is +1,then a portfolio combining these two stocks will have a variance that is:

Accepted Answer

A)  less than the weighted average of the two individual variances. 
B)  greater than the weighted average of the two individual variances. 
C)  equal to the weighted average of the two individual variances. 
D)  less than or equal to average variance of the two weighted variances, depending on other information. 
A)  less than the weighted average of the two individual variances. 
B)  greater than the weighted average of the two individual variances. 
C)  equal to the weighted average of the two individual variances. 
D)  less than or equal to average variance of the two weighted variances, depending on other information.

Question 11

Now suppose you diversify into two securities.Given all choices,can any portfolio be eliminated? Assume equal weights.

Accepted Answer

@#IMG-DLM& Portfolio

Question 12

Suppose the MiniCD Corporation's common stock has a return of 12%.Assume the risk-free rate is 4%,the expected market return is 9%,and no unsystematic influence affected Mini's return.The beta for MiniCD is:

Accepted Answer

A)  0.89. 
B)  1.60. 
C)  2.40. 
D)  3.00. 
A)  0.89. 
B)  1.60. 
C)  2.40. 
D)  3.00.

Question 13

A portfolio is entirely invested into Buzz's Bauxite Boring Equity,which is expected to return 16%,and Zum's Inc.bonds,which are expected to return 8%.Sixty percent of the funds are invested in Buzz's and the rest in Zum's.What is the expected return on the portfolio?

Accepted Answer

A)  9.6%. 
B)  12.8%. 
C)  24.1%. 
D)  6.4%. 
A)  9.6%. 
B)  12.8%. 
C)  24.1%. 
D)  6.4%.

Question 14

Systematic risk is measured by:

Accepted Answer

A)  the mean. 
B)  beta. 
C)  the geometric average. 
D)  the standard deviation. 
A)  the mean. 
B)  beta. 
C)  the geometric average. 
D)  the standard deviation.

Question 15

Suppose you desire to invest in any one of the stocks listed above.Can any be recommended?

Accepted Answer

Can't tell

Question 16

A portfolio will usually contain:

Accepted Answer

A)  only one riskless asset. 
B)  only one risky asset. 
C)  two or more assets. 
D)  no assets. 
A)  only one riskless asset. 
B)  only one risky asset. 
C)  two or more assets. 
D)  no assets.

Question 17

The expected return on GenLabs is:

Accepted Answer

A)  20.5% 
B)  12.5% 
C)  8.5% 
D)  3.3% 
A)  20.5% 
B)  12.5% 
C)  8.5% 
D)  3.3%

Question 18

A portfolio exists containing stocks D,E,and F held in proportions 30%,40%,and 30% respectively.The expected returns on the three stocks are given by 12%,20%,and 28% respectively.Calculate the portfolio's expected return.

Accepted Answer

Portfolio

Question 19

The measure of beta associates most closely with:

Accepted Answer

A)  idiosyncratic risk. 
B)  risk-free return. 
C)  systematic risk. 
D)  unexpected risk. 
E)  unsystematic risk. 
A)  idiosyncratic risk. 
B)  risk-free return. 
C)  systematic risk. 
D)  unexpected risk. 
E)  unsystematic risk.

Question 20

The elements in the off-diagonal positions of the Variance Covariance matrix are:

Accepted Answer

A)  covariances. 
B)  security selections. 
C)  variances. 
D)  security weights. 
A)  covariances. 
B)  security selections. 
C)  variances. 
D)  security weights.

Exam 11: Risk and Return: the Capital Asset Pricing Model

The covariance between the IS and DS returns is:

The total number of variance and covariance terms in portfolio is N2.How many of these would be (including non-unique)covariances?

Given the following information on 3 stocks: C. Which stocks would you recommend purchasing? Indifferent on A as .1903 _.19. Would buy B as .15 > .1473. Would not buy C as .09 < .0923.

If IS and DS are combined in a portfolio with 50% invested in each,the expected return and risk would be:

Covariance measures the interrelationship between two securities in terms of:

Why are some risks diversifiable and some nondiversifiable? Give an example of each.

The diversification effect of a portfolio of two stocks:

The means of IS and DS are:

Returns for the IC Company and for the S&P 500 Index over the previous 4-year period are given below:

If the correlation between two stocks is +1,then a portfolio combining these two stocks will have a variance that is:

Now suppose you diversify into two securities.Given all choices,can any portfolio be eliminated? Assume equal weights.

Suppose the MiniCD Corporation's common stock has a return of 12%.Assume the risk-free rate is 4%,the expected market return is 9%,and no unsystematic influence affected Mini's return.The beta for MiniCD is:

A portfolio is entirely invested into Buzz's Bauxite Boring Equity,which is expected to return 16%,and Zum's Inc.bonds,which are expected to return 8%.Sixty percent of the funds are invested in Buzz's and the rest in Zum's.What is the expected return on the portfolio?

Systematic risk is measured by:

Suppose you desire to invest in any one of the stocks listed above.Can any be recommended?

A portfolio will usually contain:

The expected return on GenLabs is:

A portfolio exists containing stocks D,E,and F held in proportions 30%,40%,and 30% respectively.The expected returns on the three stocks are given by 12%,20%,and 28% respectively.Calculate the portfolio's expected return.

The measure of beta associates most closely with:

The elements in the off-diagonal positions of the Variance Covariance matrix are:

Introduction to Corporate Finance

Accounting Statements and Cash Flow

Financial Planning and Growth

Financial Markets and Net Present Value: First Principles of Finance

The Time Value of Money

How to Value Bonds and Stocks

Net Present Value and Other Investment Rules

Net Present Value and Capital Budgeting

Risk Analysis,real Options,and Capital Budgeting

Risk and Return: Lessons From Market History

An Alternative View of Risk and Return: the Arbitrage Pricing Theory

Risk,return,and Capital Budgeting

Corporate Financing Decisions and Efficient Capital Markets

Long-Term Financing: an Introduction

Capital Structure: Basic Concepts

Capital Structure: Limits to the Use of Debt

Valuation and Capital Budgeting for the Levered Firm

Dividends and Other Payouts

Issuing Equity Securities to the Public

Long-Term Debt

Leasing

Options and Corporate Finance: Basic Concepts

Options and Corporate Finance: Extensions and Applications

Warrants and Convertibles

Derivatives and Hedging Risk

Short-Term Finance and Planning

Cash Management

Credit Management

Mergers and Acquisitions

Financial Distress

International Corporate Finance

Filters

The total number of variance and covariance terms in portfolio is N².How many of these would be (including non-unique)covariances?