Question 1

Calculate the expected return, variance, and standard deviation for an equally weighted portfolio of Stocks A and B given the following:

Accepted Answer

The answer of Calculate the expected return, variance, and standard...

Question 2

Calculate the nominal and real returns as well as the nominal and real risk premiums for the following corporate bond investment: Purchased for $840 one year ago, 4% coupon rate, sold for $894. The inflation rate was 5.0% and T-bills returned 6%. Show your work.

Accepted Answer

The answer of Calculate the nominal and real returns as...

Question 3

Assume when a coin is tossed the observance of a head rewards you with a dollar and the observance of a tail costs you fifty cents. How much would you expect to gain after 20 tosses?

Accepted Answer

A)  $5.00 
B)  $7.50 
C)  $10.00 
D) $15.00

Question 4

The S&P 500 accounts for nearly 75% of the total market value of stocks traded in the United States.

Accepted Answer

A) True 
 B)False

Question 5

For investment horizons greater than 20 years, long-term corporate bonds traditionally have outperformed common stocks.

Accepted Answer

A) True 
 B)False

Question 6

The risk that remains in a stock portfolio after efforts to diversify is known as unique risk.

Accepted Answer

A) True 
 B)False

Question 7

What was the percentage return on a non-dividend-paying stock that was purchased for $40.00 and then sold after one year for $39.00?

Accepted Answer

A)  -2.50% 
B)  -0.39% 
C)  -0.04% 
D) -2.56%

Question 8

Which one of the following companies is most apt to be exposed to the least amount of macro risk?

Accepted Answer

A)  A large producer of flour 
B)  A regional airline 
C)  A major commercial bank 
D) A machine tool manufacturer

Question 9

Which one of the following risk types can be most eliminated by adding stocks to a portfolio?

Accepted Answer

A)  Systematic risk 
B)  Unique risk 
C)  Market risk 
D) Inflation rate risk

Question 10

Historically, periods of market declines:

Accepted Answer

A)  have been limited to losses of 38% or less of market value. 
B)  have affected all stocks to the same degree. 
C)  have been limited to periods of one year or less in duration. 
D) can be sudden and severe.

Question 11

Historically speaking, the market risk premium in Italy has been higher than that of the United States.

Accepted Answer

A) True 
 B)False

Question 12

A portfolio is comprised of 60% of Stock A and 40% of Stock B.  What is the expected return of the portfolio?

Accepted Answer

A)  7.7% 
B)  8.3% 
C)  9.1% 
D)  6.4%

Question 13

The wider the dispersion of returns on a stock, the:

Accepted Answer

A)  lower the expected rate of return. 
B)  higher the standard deviation. 
C)  lower the real rate of return. 
D) lower the variance.

Question 14

The benefits of portfolio diversification are highest when the individual securities within the portfolio have returns that:

Accepted Answer

A)  vary directly with the rest of the portfolio. 
B)  vary proportionally with the rest of the portfolio. 
C)  are less than perfectly correlated with the rest of the portfolio. 
D) are perfectly correlated with the market portfolio.

Question 15

What is the percentage return on a stock that was purchased for $48.40, paid a $1.67 dividend, and was then sold after one year for $46.20?

Accepted Answer

A)  -2.50% 
B)  -1.10% 
C)  0.23% 
D) -0.33%

Question 16

Justify the historic ranking of returns for the following three categories of investment, listed from highest to lowest return: common stocks, long-term Treasury bonds, and Treasury bills.

Accepted Answer

The answer of Justify the historic ranking of returns for...

Question 17

A share of stock currently sells for $60, pays an annual dividend of $4.00, and earned a rate of return of 20% over the past year. What did this stock sell for one year ago?

Accepted Answer

A)  $42.00 
B)  $46.15 
C)  $48.46 
D) $53.33

Question 18

The idea that investors in a common stock may expect a lower total return if they purchase a stock with limited price volatility rather than one with high price volatility suggests that:

Accepted Answer

A)  investors are irrational. 
B)  there is a relationship between risk and return. 
C)  real rates of return will be lower during periods of price stability. 
D) stocks should be avoided when inflation is low.

Question 19

Investors who bought shares of stock in March 2000 would most likely have seen the value of their investment decline over the next two-and-a-half years.

Accepted Answer

A) True 
 B)False

Question 20

If one portfolio's variance exceeds that of another portfolio, its standard deviation will also be greater than that of the other portfolio.

Accepted Answer

A) True 
 B)False

Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

Calculate the expected return, variance, and standard deviation for an equally weighted portfolio of Stocks A and B given the following:

Calculate the nominal and real returns as well as the nominal and real risk premiums for the following corporate bond investment: Purchased for $840 one year ago, 4% coupon rate, sold for $894. The inflation rate was 5.0% and T-bills returned 6%. Show your work.

Assume when a coin is tossed the observance of a head rewards you with a dollar and the observance of a tail costs you fifty cents. How much would you expect to gain after 20 tosses?

The S&P 500 accounts for nearly 75% of the total market value of stocks traded in the United States.

For investment horizons greater than 20 years, long-term corporate bonds traditionally have outperformed common stocks.

The risk that remains in a stock portfolio after efforts to diversify is known as unique risk.

What was the percentage return on a non-dividend-paying stock that was purchased for $40.00 and then sold after one year for $39.00?

Which one of the following companies is most apt to be exposed to the least amount of macro risk?

Which one of the following risk types can be most eliminated by adding stocks to a portfolio?

Historically, periods of market declines:

Historically speaking, the market risk premium in Italy has been higher than that of the United States.

A portfolio is comprised of 60% of Stock A and 40% of Stock B. What is the expected return of the portfolio?

The wider the dispersion of returns on a stock, the:

The benefits of portfolio diversification are highest when the individual securities within the portfolio have returns that:

What is the percentage return on a stock that was purchased for $48.40, paid a $1.67 dividend, and was then sold after one year for $46.20?

Justify the historic ranking of returns for the following three categories of investment, listed from highest to lowest return: common stocks, long-term Treasury bonds, and Treasury bills.

A share of stock currently sells for $60, pays an annual dividend of $4.00, and earned a rate of return of 20% over the past year. What did this stock sell for one year ago?

The idea that investors in a common stock may expect a lower total return if they purchase a stock with limited price volatility rather than one with high price volatility suggests that:

Investors who bought shares of stock in March 2000 would most likely have seen the value of their investment decline over the next two-and-a-half years.

If one portfolio's variance exceeds that of another portfolio, its standard deviation will also be greater than that of the other portfolio.