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Homework Assignment for CAPM and Market Model (7.1 points in total). Show all formula, steps and calculation for full credits (for problem solving) 1. (0.3 point) Your invest $4,000 in Stock A and $6,000 in Stock B. Your forecast a 12 rate of return for A and a 15$ for B. Your forecasted wealth in one year is (a) $11,380. (b) $11,960. (c) $ 1,380. (d) $12, 420. (e) $ 2,420. 2. (0.3 point) You own 100 shares of A with a present value of $30 per share; 200 shares of B at $20. You forecast a rate of return of 10% for A: 146 for B. Your portfolio expected return IS (a) 12.01. (b) 10.89. (c) 11.6. (d) 12.3. 3. (0.2 point) The calculation of wealth at the end of the holding period includes (a) only market value. (b) market value plus dividends, but not interest receipts. (c) only dividend and interest receipts. (d) market value plus any dividend or interest receipts. 4. (0.2 point) The normal probability distribution of possible return (a) considers only down-side risk. (b) ignores up-side risk. (c) ignores down-side risk. (d) considers only up-side risk. (e) assumes symmetric risk. 5. (0.2 point) A positive covariance between two stocks' returns means (a) both returns have positive standard deviations. (b) both have positive expected returns. (c) the two returns tend to move together. (d) the two returns tend to move in opposite directions. le) there is no relationship between the two stocks' returns. 6. (0.2 point) The returns of two securities have a strong positive relationship. The correlation coefficient would be (a) - 0.8. (b) 1.4. (c) 2.0. (d) 0.9. 7. (0.2 point) If there is no relationship between the returns of two stocks, the covariance would be (a) a small, negative number. (b) zero. (c) a large, positive number. (d) a small, positive number. 8. (0.2 point) The correlation of the returns for Stock A with itself would be (a) - 1. (b) 2. (c) 1. (d) 0. 9. (0.3 point) A portfolio consists of 408 in Security A and 601 in Security B. The covariance matrix for A is 144, 225; for B is 225, 81. The standard deviation for the portfolio is (a) 11.2. (b) 12. (c) 14.9. (d) 12.7. (e) 10. 10. (0.2 point) Security A is riskier than Security B (a) Covariance (A, B) must be positive. (b) Standard Deviation (B) will be larger than Standard Deviation (A). (e) You must have larger proportion of B in your portfolio. (d) Covariance (A, B) will be greater than Covariance (B,A). (e) Covariance (A, B) - Covariance (B,A)