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40% of Emilys complete portfolio is invested in the risk-free asset, while 60% is invested in the risky portfolio. The risk-free rate is 5%. The
- 40% of Emilys complete portfolio is invested in the risk-free asset, while 60% is invested in the risky portfolio. The risk-free rate is 5%. The risky portfolio has a risk premium = 10% and standard deviation=40%. What is Emilys risk aversion A=?
| 0.42 | |
| 0.63 | |
| 1.04 | |
| 1.56 | |
| None of the above |
- You purchased 500 shares of common stock at $5 per share on margin. The initial margin is 50%, and the stock pays no dividend. Your rate of return would be __________ if you sell the stock at $8 per share. Ignore interest on margin. (Please round to the nearest %.)
| 50% | |
| 60% | |
| 80% | |
| 120% | |
| None of the above |
- You borrow $25,000 and buy 1000 shares of Facebook at $50 per share on margin. The interest on the loan is 5%. One year from now the price is $51.25. Assume no dividends are paid. Calculate your rate of return and the final margin %.
| rate of return=0%, final margin=50% | |
| rate of return=0%, final margin=47.5% | |
| rate of return=-5%, final margin=50% | |
| rate of return=-5%, final margin=47.5% | |
| None of the above |
- Amy has a risk-aversion A=2. The risk-free rate is 5%. The risky portfolio has an expected return=20% and standard deviation=30%. What % of her complete portfolio should she invest in the riskyportfolio?
| 14.7 % | |
| 25.0 % | |
| 50.0 % | |
| 83.3 % | |
| None of the above |
- Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor _______. [I] Is normally risk neutral [II] Requires a risk premium to take on risk [III] Will not lose money
| I only | |
| II only | |
| I & II | |
| I & III | |
| I, II & III |
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