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Can someone please answer these questions ASAP? Problem 1 Expected return of a portfolio If E(rX)=0.13 and E(rY)=0.05. What would be the expected rate of

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Can someone please answer these questions ASAP?

Problem 1 Expected return of a portfolio

If E(rX)=0.13 and E(rY)=0.05. What would be the expected rate of return of a portfolio made of 50% of X and 50% of Y?

A. 0.07

B. 0.08

C. 0.09

D. 0.10

E. 0.11

Problem 2 Variance of a portfolio

If Var(rX)=0.25 and Var(rY)=0.16 and Cov(rX,rY)=0.04. What would be the variance of rate of return of a portfolio made of 70% of X and 30% of Y?

A. 0.154

B. 0.120

C. 0.101

D. 0.084

E. 0.118

Problem 3 Variance of a portfolio

If Var(rX)=0.25 and Var(rY)=0.16 and Cov(rX,rY)=-0.04. What would be the variance of rate of return of a portfolio made of 70% of X and 30% of Y?

A. 0.154

B. 0.120

C. 0.101

D. 0.084

E. 0.118

Problem 4 Variance of a portfolio

If Var(rX)=0.216 and Var(rY)=0.16 and Cov(rX,rY)=0. What would be the variance of rate of return of a portfolio made of 70% of X and 30% of Y?

A. 0.154

B. 0.120

C. 0.101

D. 0.084

E. 0.118

Problem 5 Risk premium

If the rf =0.05 and the rX =0.11, calculate the risk premium for X.

A. 0.02

B. 0.03

C. 0.04

D. 0.05

E. 0.06

2

Problem 6 Sharpe Ratio

If the rf =0.04, Var(rX)=0.16 and the E(rX)=0.12, calculate the Sharpe ratio.

A. 0.2

B. 0.3

C. 0.4

D. 0.5

E. 0.6

Problem 7

One investor knows the following about assets X and Y: E[rX]=0.12, Var(rX)=0.25, E[rY]=0.08, Var(rY)=0.16.

In which case is possible to eliminate the risk completely?

A. Cov(rX,rY)=-0.20.

B. Cov(rX,rY)= 0.20.

C. Cov(rX,rY)= 0.00

D. Cov(rX,rY)= 0.50

E. There is not such case.

Problem 8

One investor knows the following about assets X and Y: E[rX]=0.12, Var(rX)=0.25, E[rY]=0.08, Var(rY)=0.16.

In which case the variance of the portfolio is a weighted average of the variance of the assets?

A. Cov(rX,rY)=-0.20.

B. Cov(rX,rY)= 0.20.

C. Cov(rX,rY)= 0.00

D. Cov(rX,rY)= 0.50

E. There is not such case.

Problem 9

Suppose the beta of Exxon-Mobil is 1.5, the risk-free rate is 4%, and the expected market rate of return is 10%. Calculate the expected rate of return on Exxon-Mobil.

A. 12.0%

B. 10.5%

C. 13.0%

D. 15.0%

E. 12.5%

Problem 10

You know that assets X and Y have the same risk. You know also that E[rX]=7% and E[rY]=9%. You can invest in a portfolio of these two assets plus and a risk-free asset T with return rT=2%.

Assume that the correlation coefficient between X and Y is bigger than -1 and smaller than 1 (to eliminate the extreme cases). Assume also that you can borrow or lend at the risk-free interest rate. In general, what is your optimal decision?

A. Invest your money only rT

B. Invest your money only in X.

C. Invest your money only in Y.

D. Invest in a portfolio mixing only X and Y.

E. Invest in your money in a portfolio mixing X and Y, plus borrowing or lending at rT.

3

Problem 11

The correlation coefficient between the efficient portfolio and the risk-free asset is:

A. 0.0

B. -1.0

C. 1.0

D. 0.5

E. -0.5

Problem 12

The presence of a risk-free asset enables the investor to:

I) Invest in the market portfolio.

II) Find an interior portfolio.

III) Borrow or lend at the risk-free rate.

IV) Form portfolios having greater Sharpe ratios.

A. I and II only

B. I and III only

C. IV only

D. III and IV only

E. III only

Problem 13

The beta of Treasury bills is:

A. +1.0.

B. +0.5.

C. -1.0.

D. 0.0.

E. -0.5

Problem 14

The beta of the market portfolio is:

A. +1.0.

B. +0.5.

C. -1.0.

D. 0.0.

E. -0.5

Problem 15

The capital asset pricing model (CAPM) states which of the following:

A. The expected rate of return on an investment is proportional to its beta.

B. The expected risk premium on an investment is proportional to its beta.

C. The expected rate of return on an investment is determined entirely by the risk-free rate and the market rate of return.

D. The expected rate of return on an investment is determined entirely by the risk-free rate.

E. The return on an investment is proportional to its beta.

Problem 16

A stock return's beta measures:

A. The stock's covariance with the risk-free asset.

B. The return of the risk free asset.

C. The return on the stock.

D. The change in the stock's return for a given change in the market return.

E. The standard deviation on the stock's return.

4

Problem 17

If the market risk premium is 6%, then according to the CAPM, the risk premium of a stock with beta value of 1.5 must be:

A. Greater than 9%.

B. Less than 9%.

C. 9%.

D. Cannot be determined.

E. None of the above options.

Problem 18

The security market line (SML) is the graph of:

A. Expected rate of return on investment vs. variance of returns.

B. Expected rate of return on investment vs. risk-free asset.

C. Expected rate of return on investment vs. standard deviation of returns.

D. Expected rate of return on investment vs. beta.

E. Expected rate of return on investment vs. average returns.

Problem 19

If a stock were underpriced, it would plot:

A. On the Y-axis.

B. On the X-axis.

C. Above the security market line.

D. Below the security market line.

E. On the security market line.

Problem 20

Assume the following data for a stock: Beta = 1.5; Risk-free rate = 4%; Market rate of return = 12%; and Expected rate of return on the stock = 10%. Then the stock is:

A. Overpriced.

B. Underpriced.

C. Correctly priced.

D. Cannot be determined.

E. None of the above options.

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