Question 1

If you own 100 shares of Air Line Inc. at $42.50, 250 shares of BuyRite at $53.25, and 350 shares of MotorCity at $7.75, what are the portfolio weights of each stock?

Accepted Answer

A) Air Line = 0.3333, BuyRite = 0.3333, MotorCity = 0.3333 
B) Air Line = 0.10, BuyRite = 0.25, MotorCity = 0.35 
C) Air Line = 0.2096, BuyRite = 0.6566, MotorCity = 0.1338 
D) Air Line = 0.1429, BuyRite = 0.3571, MotorCity = 0.5000

Question 2

Rx Corp. stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend last year. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return?

Accepted Answer

A) 1.67 percent 
B) 4.17 percent 
C) 5.60 percent 
D) 5.83 percent

Question 3

Year-to-date, Oracle had earned a 15.0 percent return. During the same time period, Valero Energy earned -12.96 percent and McDonald's earned 1.80 percent. If you have a portfolio made up of 50 percent Oracle, 10 percent Valero Energy, and 40 percent McDonald's, what is your portfolio return?

Accepted Answer

A) 6.14 percent 
B) 4.86 percent 
C) 5.86 percent 
D) 6.92 percent

Question 4

We commonly measure the risk-return relationship using which of the following?

Accepted Answer

A) Coefficient of variation 
B) Correlation coefficient 
C) Standard deviation 
D) Expected returns

Question 5

Which of the following is an index that tracks 500 companies, which allows for a great deal of diversification?

Accepted Answer

A) Nasdaq 
B) Fortune 500 
C) S&P 500 
D) Wall Street Journal

Question 6

You have $45,050 to invest. You want to purchase shares of Company Air at $10.25, Company B at $15.10, and Company F at $9.05. How many shares of each company should you purchase so that your portfolio consists of 30 percent Company A, 50 percent Company B, and 20 percent Company F? Report only whole stock shares.

Accepted Answer

A) Company A = 30 shares, Company B = 50 shares, Company F = 20 shares 
B) Company A = 44 shares, Company B = 30 shares, Company F = 50 shares 
C) Company A = 308 shares, Company B = 755 shares, Company F = 181 shares 
D) Company A = 1,323 shares, Company B = 1,490 shares, Company F = 993 shares

Question 7

The standard deviation of the past five monthly returns for PG Company are 2.75 percent, -0.75 percent, 4.15 percent, 6.29 percent, and 3.84 percent. What is the standard deviation?

Accepted Answer

A) 2.309 percent 
B) 2.581 percent 
C) 3.256 percent 
D) 3.406 percent

Question 8

Which of the following statements is correct regarding total risk?

Accepted Answer

A) The coefficient of variation is a measure of the firm's total risk. 
B) All firms have the same amount of total risk because they are all exposed to the same market risk. 
C) Conglomerates will have less total risk than a firm that has one line of business. 
D) None of these statements are correct.

Question 9

Year to date, Company Y had earned a 10.8 percent return. During the same time period, Company R earned 12.20 percent and Company C earned -1.56 percent. If you have a portfolio made up of 45 percent Y, 35 percent R, and 20 percent C, what is your portfolio return?

Accepted Answer

A) 7.15 percent 
B) 8.19 percent 
C) 8.82 percent 
D) 9.44 percent

Question 10

Which of the following is defined as the volatility of an investment, which includes firm specific risk as well as market risk?

Accepted Answer

A) Diversifiable risk 
B) Market risk 
C) Standard deviation 
D) Total risk

Question 11

An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?

Accepted Answer

A) Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333 
B) Adobe System = 0.2, Dow Chemical = 0.3, Office Depot = 0.5 
C) Adobe System = 0.3, Dow Chemical = 0.2, Office Depot = 0.5 
D) Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4

Question 12

Which of these is the investor's combination of securities that achieves the highest expected return for a given risk level?

Accepted Answer

A) Efficient portfolio 
B) Modern portfolio 
C) Optimal portfolio 
D) Total portfolio

Question 13

FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return?

Accepted Answer

A) $3,990; 11.73 percent 
B) $4,110; 12.08 percent 
C) $4,250; 12.29 percent 
D) $2,009; 9.13 percent

Question 14

At the beginning of the month, you owned $6,000 of Company G, $8,000 of Company S, and $1,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.25 percent, -1.50 percent, and -0.23 percent. What is your portfolio return?

Accepted Answer

A) 1.84 percent 
B) 2.08 percent 
C) 3.71 percent 
D) 5.52 percent

Question 15

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of 10 percent. The expected return and risk of portfolio Yellow are 13 percent and 10 percent, and for the Purple portfolio are 9 percent and 14 percent.

Accepted Answer

A) Portfolio Blue dominates portfolio Yellow 
B) Portfolio Yellow dominates portfolio Blue 
C) Portfolio Purple dominates portfolio Blue 
D) Portfolio Purple dominates portfolio Yellow

Question 16

WayCo stock was $75 per share at the end of last year. Since then, it paid a $3 per share dividend last year. The stock price is currently $70. If you owned 200 shares of WayCo, what was your percent return?

Accepted Answer

A) -6.67 percent 
B) -2.67 percent 
C) 4.00 percent 
D) 4.29 percent

Question 17

Compute the standard deviation of Kohl's monthly returns. The past five monthly returns for Kohl's are 5.55 percent, 8.62 percent, -4.44 percent, -1.52 percent, and 9.75 percent.

Accepted Answer

A) 4.92 percent 
B) 5.07 percent 
C) 6.28 percent 
D) 6.12 percent

Question 18

If you own 600 shares of Alaska Corporation at $23.25, 450 shares of Best Company at $34.50, and 150 shares of Motor Company at $6.95, what are the portfolio weights of each stock?

Accepted Answer

A) Alaska = 0.6000, Best = 0.4500, Motor = 0.1500 
B) Alaska = 0.3594, Best = 0.5332, Motor = 0.1074 
C) Alaska = 0.4571, Best = 0.5087, Motor = 0.0342 
D) Alaska = 0.2325, Best = 0.3450, Motor = 0.0695

Question 19

The standard deviation of the past five monthly returns for K and Company are 2.28 percent, 2.64 percent, -1.05 percent, 4.25 percent, and 9.25 percent. What is the standard deviation?

Accepted Answer

A) 1.45 percent 
B) 1.62 percent 
C) 3.47 percent 
D) 3.76 percent

Question 20

If you own 1,000 shares of Alaska Corporation at $19.95, 250 shares of Best Company at $17.50, and 250 shares of Motor Company at $2.50, what are the portfolio weights of each stock?

Accepted Answer

A) Alaska = 0.1000, Best = 0.2500, Motor = 0.2500 
B) Alaska = 0.4994, Best = 0.4380, Motor = 0.0626 
C) Alaska = 0.7996, Best = 0.1754, Motor = 0.0250 
D) Alaska = 0.1995, Best = 0.1750, Motor = 0.0250

Exam 9: Characterizing Risk and Return