John has $6,000 to invest. He's thinking about the following companies: 1. If John decides to spend an equal amount for each of the four stocks, how many stocks would he buy in Nutso? Assume that partial stocks can be traded (bought and sold). a. 12.5 b. 50 c. 16.3 d. 25 e. 18.7 2. If John decides to spend an equal amount for each of the four stocks, what would the beta of his portfolio be? a. 1.05 b. 0.95 c. 1.00 d. 1.30 e. 0.81 3. If John decides to buy 20 shares of each stock, what would the beta of his portfolio be? a. 0.95 b. 0.81 c. 19.0 d. 16.2 e. 1.24 4. Fill in the required rate of return of each of the stocks if the market risk premium =6% and the risk-free rate =2% 5. You believe there are three possible outcomes for Coot Co this coming year; there is 60% chance that it would have a 5% return, a 10% chance of 5% return, and a chance of 15% return. what is the standalone risk of this stock? a. sqrt [0.6(5%7.4%)2+0.1(5%7.4%)2+0.3(15%7.4%)2]=6.01% b. 0.6(5%7.4%)2+0.1(5%7.4%)2+0.3(15%7.4%)2=0.36% c. 0.6(5%7.4%)+0.1(5%7.4%)+(15%7.4%)=0.40% d. sqrt [0.6(5%7%)2+0.1(5%7%)2+(15%7%)2]=6.00% e. sqrt[0.6(5%7%)2+0.1(5%7%)2+0.3(15%7%)2]=8.99% 6. What is the Sharpe ratio for Coot Co? a. 0.60 b. 0.56 c. 1.80 d. 0.78 e. 1.28 7. If the required rate of return is 7% and your expected rate of return is 8%, what should you do as an investor? a. Buy the stock because you'll get more than what the riskiness of the stock requires b. Sell the stock because you'll get more than what the riskiness of the stock requires c. Buy the stock because the riskier stock gets higher returns d. Sell the stock because the market is going to tank soon e. Don't know because we don't know anything about the risk of the firm 8. If two firms' correlation is 0 , the riskiness of the portfolio of these two stocks: a. Can be 0 b. Can be less than 0 c. Can be less than each of the individual stocks' standalone risk d. Can be more than each of the individual stocks' standalone risk e. Is the weighted average of the two individual stocks' standalone risks 9. Select all correct statements below: a. There are no investments with 0 coefficient of variation b. All investors are risk averse c. Treasury bills are less risky than treasury bonds d. Expected returns are always positive e. Bonds are riskless because the investors are guaranteed repayment with interest f. Risk averse investors prefers to invest in firms with low coefficient of variation g. Riskiness of a stock is measured by the variance of expected returns h. The riskiness of a portfolio can be lower than the riskiness of each individual stock within the portfolio i. The return of a portfolio can be lower than the return of each individual stock within the portfolio j. The higher the correlation of returns between 2 stocks, the higher the diversification benefit (or lower the portfolio risk) k. market risk of a firm can be diversified away. Therefore, investors should not be compensated for carrying market risk. 1. Market risk premium must be positive