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

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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%

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