1) A risk averse investor is

Which of the following statements is true?

a)minimize risk

b)requires a risk premium

c)minimizes return at given risk

d)none

For questions 9 and 10 : Suppose you deposited $ 5,000 into a savings account today . The account pays a nominal annual interest rate of 6 % . One year from today , you withdraw $ 3,500 from the account . Assume that you make no additional deposits into or withdrawals from the account until the end of year 8 .

9 ) What is the balance on your account at the end of year 1? a) $ 1,500 b ) $ 1,800 ) 5,160 ) 5,300

10 ) What will your ending balance be 8 years from today? a) $ 2218 b ) $ 2391 ) $ 2707 ) $ 2869

11)You want to buy a home theater system for your new apartment and youdecided to get consumer credit to finance this purchase . Garanti Bank's quote for 2 year consumer credit is 1.2 % monthly . You wish to calculate the annual cost of this loan to you . Which of the following is correct ?

a ) EAR = ( 1+ 0,12 / 12 ) ^ 12 - 1

b ) EAR = ( 1 + 0,012 ) ^ 12 - 1

c ) EAR = ( 1 + 0,012 ) ^ 24 - 1

d ) EAR = ( 1 + 0,012 / 12 ) ^ 12 - 1

21)Which one is an alternative term for nonsystematic risk?

a) Firm- specific risk

b)Market risk

c)Risk premium

d)Nondiversifiable risk

25 ) Which of the following is NOT true for diversification in financial markets ?

a ) It is the concept of spreading your money among a number of different investments in order to reduce risk .

b ) Diversification - can increase the expected return of your portfolio .

c ) It's the idea that you shouldn't put all your eggs in one basket .

d ) It reduces nonsystematic risk of your portfolio .

26 ) Beta of Stock X is 1,5 . Risk free rate of return.is currently 3 percent and the market risk premium is estimated to be 6 percent . What is the expected return of Stock X according to Capital Asset Pricing Model ?

a ) 8 % b ) 12 % c ) 16 % d ) 20 %

For questions 27 and 28 : Consider two risky stocks . Stock A has an expected return of 10 % and a standard deviation of 25 % . Stock B has an expected return of 20 % and a standard deviation of 30 % . The correlation coefficient between the two stocks is 0,40 .

27 ) What is the standard deviation of a portfolio where 60 % of capital is invested in Stock A. and 40 % is invested in stock B ?

a ) 22,65 % b ) 25,32 % c ) 26,44 % d ) 27,36 %

28 ) What should be the weight of Stock B if you want to form a portfolio ( combining A and B ) with an expected return of 19 % ?

a ) 10 % b ) 30 % c ) 50 % d ) 70 %