Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
8.40%
11.33%
12.65%
15.47%
Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
1.28%
4.36%
7.82%
11.34%
Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return?
Answer
5.778%
4.270%
6.871%
3.435%
Risk that CAN BE eliminated through proper diversification is called _____.
Answer
market risk
firm-specific risk
systematic risk
non-diversifiable risk
GIVEN: Spot Rate: 1 X = 1.02 Y
30 Day Forward Rate: 1 X = 1.15 Y
Your currency is "X" and you will be paying 345Y. You would ____ because _____.
Answer
pay now; of the irrelevance of payment time
pay now; it will take less "X"
pay in 30 days; it will take less "X"
The amount of one currency needed to purchase one unit of another currency is the _____.
Answer
derivative rate
exchange rate
backwardation rate
over-the-counter rate
The price of an option is called a(n) _____.
Answer
expiration cost
holding cost
premium
proceeds
When a futures contract expires, the parties usually _____.
Answer
have a party when losses are low
take delivery of the contract asset
do a cash settlement
swap off liabilities.
When a forward contract expires, the parties will _____.
Answer
have a party when losses are low
deliver the contract asset
do a cash settlement
swap off liabilities.
Any asset whose value is derived from the value of some underlying asset is a(n) ____.
Answer
derivative
primary capital
spot asset
intermediary asset
Which of the following is not traded on an exchange?
Answer
options
futures
forwards
they are all exchange-traded
A system under which a country's exchange rates are tied to another currency by government policy is _____.
Answer
floating exchange rates
pegged exchange rates
convertible exchange rates
forward rates
One of the _______ for business with a floating exchange rate system is the _______ planning business activities in an international market.
Answer
disadvantages; difficulty of
advantages; easiness of
irrelevant situations; normal
none of the above
U.S. dollars deposited in foreign banks are called _____ and interest paid on these deposits is normally tied to _____.
Answer
non-foreign deposits; FED funds rate
indirect dollars; Discount Funds Rate
Eurodollars; LIBOR
none of the above
____ is a disadvantage of the gold standard.
Answer
Excess currency slowing economic growth
Excess inflation
A non-variable beta
Lack of currency to promote continued economic expansion
A monetary system in which paper money can be converted directly to gold is a(n) ___.
Answer
dollar backed float
gold standard
currency float
Americanized gold standard
none of the above
Reason(s) for the Great Depression following the Great War include:
Answer
trade protectionism
isolationism
nationalism
all of the above
none of the above
An agreement between the WW II allies in 1944 designed to prevent the problems leading to the Great Depression and WW II and to rebuild Asia and Europe was the _____.
Answer
Armistice of 1945
Bretton Woods Agreement
Lend Lease Act for Asia and Europe
none of the above
A derivative is used to ____ thereby _____.
Answer
float; gaining excess currency for expansion
peg currency; improving trade with a primary partner
hedge; reducing/eliminating risk
none of the above
Easier business planning is an advantage of the ______ system.
Answer
mixed exchange rate
floating exchange rate
derivative exchange rate
gold standard
none of the above
____ is the chance that some unfavorable event will occur.
Answer
Expected return
Risk
Coefficient of variation
Correlation
Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | | 8.40% |
| | | 11.33% |
| | | 12.65% |
| | | 15.47% |
Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | | 1.28% |
| | | 4.36% |
| | | 7.82% |
| | | 11.34% |
Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return?
Answer
| | | 5.778% |
| | | 4.270% |
| | | 6.871% |
| | | 3.435% |
Risk that CAN BE eliminated through proper diversification is called _____.
Answer
| | | market risk |
| | | firm-specific risk |
| | | systematic risk |
| | | non-diversifiable risk |
GIVEN: Spot Rate: 1 X = 1.02 Y
30 Day Forward Rate: 1 X = 1.15 Y
Your currency is "X" and you will be paying 345Y. You would ____ because _____.
Answer
| | | pay now; of the irrelevance of payment time |
| | | pay now; it will take less "X" |
| | | pay in 30 days; it will take less "X" |
The amount of one currency needed to purchase one unit of another currency is the _____.
Answer
| | | derivative rate |
| | | exchange rate |
| | | backwardation rate |
| | | over-the-counter rate |
The price of an option is called a(n) _____.
Answer
| | | expiration cost |
| | | holding cost |
| | | premium |
| | | proceeds |
When a futures contract expires, the parties usually _____.
Answer
| | | have a party when losses are low |
| | | take delivery of the contract asset |
| | | do a cash settlement |
| | | swap off liabilities. |
When a forward contract expires, the parties will _____.
Answer
| | | have a party when losses are low |
| | | deliver the contract asset |
| | | do a cash settlement |
| | | swap off liabilities. |
Any asset whose value is derived from the value of some underlying asset is a(n) ____.
Answer
| | | derivative |
| | | primary capital |
| | | spot asset |
| | | intermediary asset |
Which of the following is not traded on an exchange?
Answer
| | | options |
| | | futures |
| | | forwards |
| | | they are all exchange-traded |
A system under which a country's exchange rates are tied to another currency by government policy is _____.
Answer
| | | floating exchange rates |
| | | pegged exchange rates |
| | | convertible exchange rates |
| | | forward rates |
One of the _______ for business with a floating exchange rate system is the _______ planning business activities in an international market.
Answer
| | | disadvantages; difficulty of |
| | | advantages; easiness of |
| | | irrelevant situations; normal |
| | | none of the above |
U.S. dollars deposited in foreign banks are called _____ and interest paid on these deposits is normally tied to _____.
Answer
| | | non-foreign deposits; FED funds rate |
| | | indirect dollars; Discount Funds Rate |
| | | Eurodollars; LIBOR |
| | | none of the above |
____ is a disadvantage of the gold standard.
Answer
| | | Excess currency slowing economic growth |
| | | Excess inflation |
| | | A non-variable beta |
| | | Lack of currency to promote continued economic expansion |
A monetary system in which paper money can be converted directly to gold is a(n) ___.
Answer
| | | dollar backed float |
| | | gold standard |
| | | currency float |
| | | Americanized gold standard |
| | | none of the above |
Reason(s) for the Great Depression following the Great War include:
Answer
| | | trade protectionism |
| | | isolationism |
| | | nationalism |
| | | all of the above |
| | | none of the above |
An agreement between the WW II allies in 1944 designed to prevent the problems leading to the Great Depression and WW II and to rebuild Asia and Europe was the _____.
Answer
| | | Armistice of 1945 |
| | | Bretton Woods Agreement |
| | | Lend Lease Act for Asia and Europe |
| | | none of the above |
A derivative is used to ____ thereby _____.
Answer
| | | float; gaining excess currency for expansion |
| | | peg currency; improving trade with a primary partner |
| | | hedge; reducing/eliminating risk |
| | | none of the above |
Easier business planning is an advantage of the ______ system.
Answer
| | | mixed exchange rate |
| | | floating exchange rate |
| | | derivative exchange rate |
| | | gold standard |
| | | none of the above |
____ is the chance that some unfavorable event will occur.
Answer
| | | Expected return |
| | | Risk |
| | | Coefficient of variation |
| | | Correlation |
Related questions
Compute the expected return of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | | 8.40% |
| | | 11.33% |
| | | 12.65% |
| | | 15.47% |
Compute the standard deviation of a portfolio given these three economic states, their likelihoods, and the potential returns:
Economic State Probability Return
Fast Growth 20.00% 30.00%
Slow Growth 50.00% 6.00%
Recession 30.00% -2.00%
Answer
| | | 1.28% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 4.36% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 7.82% | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| | | 11.34% Year-to-date, Company O had earned -2.10% return. During the same time period Company V earned 8.00% and Company M earned 6.25%. If you have a portfolio made up of 40.00% Company O, 30.00% Company V, and 30.00% Company M, what is the overall portfolio return? Answer
|
What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?
1.76 percent
4.50 percent
7.38 percent
11.54 percent
Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.
JM bond, TC bond, B&O bond, IB bond
IB bond, B&O bond, TC bond, JM bond
TC bond, B&O bond, IB bond, JM bond
JM bond, IB bond, B&O bond, TC bond
A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)
3.00 percent
3.09 percent
5.75 percent
6.00 percent
A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?
The municipal bond.
The corporate bond.
Both give the client equal profits after taxes.
There is not enough information given to determine answer.
Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $15,500 of Dow Chemical, and $17,000 of Office Depot. What are the portfolio weights of each stock?
Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
Adobe System = 0.3158, Dow Chemical = 0.3263, Office Depot = 0.3579
Adobe System = 0.3263, Dow Chemical = 0.3158, Office Depot = 0.3579
Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4000
Portfolio Return Year-to-date, Company O had earned a -7.4 percent return. During the same time period, Company V earned 9.65 percent and Company M earned 2.68 percent. If you have a portfolio made up of 20 percent Company O, 40 percent Company V, and 40 percent Company M, what is your portfolio return?
4.93%
6.41%
3.45%
19.73%
Average Return The past five monthly returns for K and Company are 4.55 percent, 4.72 percent, -.65 percent, -.15 percent, and 9.30 percent. What is the average monthly return?
3.874%
1.614%
1.481%
3.554%
Portfolio Weights If you own 270 shares of Air Line Inc at $18.95, 170 shares of BuyRite at $9.9, and 370 shares of Motor City at $45.95, what are the portfolio weights of each stock?
Air Line = .2700, BuyRite = .1700, MotorCity = .3700
Air Line = .3333, BuyRite = .3333, MotorCity = .3333
Air Line = .3333, BuyRite = .2099, MotorCity = .4568
Air Line = .2150, BuyRite = .0707, MotorCity = .7143
Portfolio Return At the beginning of the month, you owned $6,500 of Company G, $8,900 of Company S, and $2,800 of Company N. The monthly returns for Company G, Company S, and Company N were 8.15 percent, -1.59 percent, and -.14 percent. What is your portfolio return?
2.14%
6.42%
3.29%
2.13%
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?
2.309 percent
2.581 percent
3.256 percent
3.406 percent
Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.
Idol Staff, Rail Haul, Poker-R-Us
Rail Haul, Idol Staff, Poker-R-Us
Idol Staff, Poker-R-Us, Rail Haul
Poker-R-Us, Rail Haul, Idol Staff
Which of the following statements is correct?
A single stock has a lot of diversifiable risk.
A single stock has more market risk than a diversified portfolio of stocks.
Bonds and stocks have a high correlation because they are both financial assets.
None of these statements is correct.
Which of the following statements is correct with regards to diversification?
Diversifying reduces the return of the portfolio.
Diversifying reduces the market risk of the portfolio.
Diversifying reduces the dollar return of the portfolio.
None of these statements is correct.
Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:
| Economic State | Probability | Return |
| Fast Growth | .1 | 29% |
| Slow Growth | .8 | 14% |
| Recession | .1 | -29% |
14.0%
14.3%
11.2%
17.0%
Risk Premium If the annual return on the S&P 500 Index was 14.00 percent. The annual T-bill yield during the same period was 6.50 percent. What was the market risk premium during that year?
20.50%
14.00%
7.50%
6.50%
CAPM Required Return A company has a beta of .69. If the market return is expected to be 13.9 percent and the risk-free rate is 5.95 percent, what is the company's required return?
11.44%
15.54%
17.39%
9.59%
Portfolio Beta You have a portfolio with a beta of .94. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.54?
1.24
1.00
1.30
2.48
Under/Over Valued Stock A manager believes his firm will earn a 17.8 percent return next year. His firm has a beta of 1.68, the expected return on the market is 15.8 percent, and the risk-free rate is 5.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
22.6%, under-valued
27.544%, under-valued
27.544%, over-valued
22.6%, over-valued
What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?
1.76 percent
4.50 percent
7.38 percent
11.54 percent
Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.
JM bond, TC bond, B&O bond, IB bond
IB bond, B&O bond, TC bond, JM bond
TC bond, B&O bond, IB bond, JM bond
JM bond, IB bond, B&O bond, TC bond
A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)
3.00 percent
3.09 percent
5.75 percent
6.00 percent
A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?
The municipal bond.
The corporate bond.
Both give the client equal profits after taxes.
There is not enough information given to determine answer.
Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $15,500 of Dow Chemical, and $17,000 of Office Depot. What are the portfolio weights of each stock?
Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
Adobe System = 0.3158, Dow Chemical = 0.3263, Office Depot = 0.3579
Adobe System = 0.3263, Dow Chemical = 0.3158, Office Depot = 0.3579
Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4000
Portfolio Return Year-to-date, Company O had earned a -7.4 percent return. During the same time period, Company V earned 9.65 percent and Company M earned 2.68 percent. If you have a portfolio made up of 20 percent Company O, 40 percent Company V, and 40 percent Company M, what is your portfolio return?
4.93%
6.41%
3.45%
19.73%
Average Return The past five monthly returns for K and Company are 4.55 percent, 4.72 percent, -.65 percent, -.15 percent, and 9.30 percent. What is the average monthly return?
3.874%
1.614%
1.481%
3.554%
Portfolio Weights If you own 270 shares of Air Line Inc at $18.95, 170 shares of BuyRite at $9.9, and 370 shares of Motor City at $45.95, what are the portfolio weights of each stock?
Air Line = .2700, BuyRite = .1700, MotorCity = .3700
Air Line = .3333, BuyRite = .3333, MotorCity = .3333
Air Line = .3333, BuyRite = .2099, MotorCity = .4568
Air Line = .2150, BuyRite = .0707, MotorCity = .7143
Portfolio Return At the beginning of the month, you owned $6,500 of Company G, $8,900 of Company S, and $2,800 of Company N. The monthly returns for Company G, Company S, and Company N were 8.15 percent, -1.59 percent, and -.14 percent. What is your portfolio return?
2.14%
6.42%
3.29%
2.13%
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?
2.309 percent
2.581 percent
3.256 percent
3.406 percent
Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.
Idol Staff, Rail Haul, Poker-R-Us
Rail Haul, Idol Staff, Poker-R-Us
Idol Staff, Poker-R-Us, Rail Haul
Poker-R-Us, Rail Haul, Idol Staff
Which of the following statements is correct?
A single stock has a lot of diversifiable risk.
A single stock has more market risk than a diversified portfolio of stocks.
Bonds and stocks have a high correlation because they are both financial assets.
None of these statements is correct.
Which of the following statements is correct with regards to diversification?
Diversifying reduces the return of the portfolio.
Diversifying reduces the market risk of the portfolio.
Diversifying reduces the dollar return of the portfolio.
None of these statements is correct.
Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:
| Economic State | Probability | Return |
| Fast Growth | .1 | 29% |
| Slow Growth | .8 | 14% |
| Recession | .1 | -29% |
14.0%
14.3%
11.2%
17.0%
Risk Premium If the annual return on the S&P 500 Index was 14.00 percent. The annual T-bill yield during the same period was 6.50 percent. What was the market risk premium during that year?
20.50%
14.00%
7.50%
6.50%
CAPM Required Return A company has a beta of .69. If the market return is expected to be 13.9 percent and the risk-free rate is 5.95 percent, what is the company's required return?
11.44%
15.54%
17.39%
9.59%
Portfolio Beta You have a portfolio with a beta of .94. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.54?
1.24
1.00
1.30
2.48
Under/Over Valued Stock A manager believes his firm will earn a 17.8 percent return next year. His firm has a beta of 1.68, the expected return on the market is 15.8 percent, and the risk-free rate is 5.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
22.6%, under-valued
27.544%, under-valued
27.544%, over-valued
22.6%, over-valued
What is the taxable equivalent yield on a municipal bond with a yield to maturity of 4.5 percent for an investor in the 39 percent marginal tax bracket?
1.76 percent
4.50 percent
7.38 percent
11.54 percent
Rank the following bonds in order from lowest credit risk to highest risk all with the same time to maturity, by their yield to maturity: JM Corporate bond with yield of 12.25 percent, IB Corporate bond with yield of 4.49 percent, TC Corporate bond with yield of 8.76 percent, and B&O Corporate bond with a yield of 5.99 percent.
JM bond, TC bond, B&O bond, IB bond
IB bond, B&O bond, TC bond, JM bond
TC bond, B&O bond, IB bond, JM bond
JM bond, IB bond, B&O bond, TC bond
A 5.75 percent coupon bond with 12 years left to maturity is offered for sale at $978.83. What yield to maturity is the bond offering? (Assume interest payments are paid semi-annually and par value is $1,000.)
3.00 percent
3.09 percent
5.75 percent
6.00 percent
A client in the 28 percent marginal tax bracket is comparing a municipal bond that offers a 3.25 percent yield to maturity and a similar-risk corporate bond that offers a 4.10 percent yield. Which bond will give the client more profit after taxes?
The municipal bond.
The corporate bond.
Both give the client equal profits after taxes.
There is not enough information given to determine answer.
Portfolio Weights An investor owns $15,000 of Adobe Systems stock, $15,500 of Dow Chemical, and $17,000 of Office Depot. What are the portfolio weights of each stock?
Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
Adobe System = 0.3158, Dow Chemical = 0.3263, Office Depot = 0.3579
Adobe System = 0.3263, Dow Chemical = 0.3158, Office Depot = 0.3579
Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4000
Portfolio Return Year-to-date, Company O had earned a -7.4 percent return. During the same time period, Company V earned 9.65 percent and Company M earned 2.68 percent. If you have a portfolio made up of 20 percent Company O, 40 percent Company V, and 40 percent Company M, what is your portfolio return?
4.93%
6.41%
3.45%
19.73%
Average Return The past five monthly returns for K and Company are 4.55 percent, 4.72 percent, -.65 percent, -.15 percent, and 9.30 percent. What is the average monthly return?
3.874%
1.614%
1.481%
3.554%
Portfolio Weights If you own 270 shares of Air Line Inc at $18.95, 170 shares of BuyRite at $9.9, and 370 shares of Motor City at $45.95, what are the portfolio weights of each stock?
Air Line = .2700, BuyRite = .1700, MotorCity = .3700
Air Line = .3333, BuyRite = .3333, MotorCity = .3333
Air Line = .3333, BuyRite = .2099, MotorCity = .4568
Air Line = .2150, BuyRite = .0707, MotorCity = .7143
Portfolio Return At the beginning of the month, you owned $6,500 of Company G, $8,900 of Company S, and $2,800 of Company N. The monthly returns for Company G, Company S, and Company N were 8.15 percent, -1.59 percent, and -.14 percent. What is your portfolio return?
2.14%
6.42%
3.29%
2.13%
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?
2.309 percent
2.581 percent
3.256 percent
3.406 percent
Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.
Idol Staff, Rail Haul, Poker-R-Us
Rail Haul, Idol Staff, Poker-R-Us
Idol Staff, Poker-R-Us, Rail Haul
Poker-R-Us, Rail Haul, Idol Staff
Which of the following statements is correct?
A single stock has a lot of diversifiable risk.
A single stock has more market risk than a diversified portfolio of stocks.
Bonds and stocks have a high correlation because they are both financial assets.
None of these statements is correct.
Which of the following statements is correct with regards to diversification?
Diversifying reduces the return of the portfolio.
Diversifying reduces the market risk of the portfolio.
Diversifying reduces the dollar return of the portfolio.
None of these statements is correct.
Expected Return Compute the expected return given these three economic states, their likelihoods, and the potential returns:
| Economic State | Probability | Return |
| Fast Growth | .1 | 29% |
| Slow Growth | .8 | 14% |
| Recession | .1 | -29% |
14.0%
14.3%
11.2%
17.0%
Risk Premium If the annual return on the S&P 500 Index was 14.00 percent. The annual T-bill yield during the same period was 6.50 percent. What was the market risk premium during that year?
20.50%
14.00%
7.50%
6.50%
CAPM Required Return A company has a beta of .69. If the market return is expected to be 13.9 percent and the risk-free rate is 5.95 percent, what is the company's required return?
11.44%
15.54%
17.39%
9.59%
Portfolio Beta You have a portfolio with a beta of .94. What will be the new portfolio beta if you keep 40 percent of your money in the old portfolio and 60 percent in a stock with a beta of 1.54?
1.24
1.00
1.30
2.48
Under/Over Valued Stock A manager believes his firm will earn a 17.8 percent return next year. His firm has a beta of 1.68, the expected return on the market is 15.8 percent, and the risk-free rate is 5.8 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
22.6%, under-valued
27.544%, under-valued
27.544%, over-valued
22.6%, over-valued
