2.2

Stock A has an expected return of 10% and a beta of 1. Stock B has an expected return of 12% and a beta of 1.2. Risk free rate is 2% and market expected return is 9%.

2.2.a What is the alpha for Stock A? 2.2.b What is the alpha for Stock B?

2.2.c Which stock is a better buy? A. Stock A. B. Stock B. C. Not sure with given information.

2.2.d Which stock is likely to have higher standard deviation? A. Stock A. B. Stock B. C. Not sure with given information.

2.3

Suppose an investment agent offers you an investment portfolio that promises an annual return of >= 15% while stock market portfolios are expected to have only 10% annual return.

2.3.1 When the stock market portfolios return falls by 2%, how is the return of this investment portfolio most likely to change? A. Its return falls 2% too. B. Its return falls more than 2%.

C. Its return falls less than 2%. D. Its return may fall or increase.

2.3.2 The investment agent promises you that this investment portfolio is not only profitable but also very safe. Could that be true? A. Yes, it is possible. B. No, it is not possible.

C. It may happen but cannot last when more investors find this investment portfolio.