Question 1 (1 point)

A mutual fund has five equally likely outcomes: -5%, 8%, 12%, 15%, and 20%. Calculate the standard deviation of the rate of return. Round your answer to the nearest tenth of a percent.

Question 1 options:

0.0%

8.5%

9.5%

18.9%

Question 2 (1 point)

Refer to the information above. Calculate the expected returns for the two portfolios.

Round your answer to the nearest hundredth of a percent.

ScenarioPortfolio JPortfolio M

13%-1%

212%0%

314%15%

416%25%

Question 2 options:

E(rJ) = 9.00%; E(rM) = 9.75%

E(rJ) = 11.25%; E(rM) = 9.75%

E(rJ) = 15.00%; E(rM) =10.25%

none of the above

Question 3 (1 point)

An investor invests $4,000 to buy 200 shares of Sand Corporation, which has an expected return of 24%; $2,000 to buy 100 shares of Water Corporation, with an expected return of 18%; and $4,000 to buy 400 shares in Beach Corporation, with an expected return of 28%. What is the expected return on this portfolio?

Question 3 options:

25.4%

24.4%

17.8%

23.3%

Question 4 (1 point)

The following returns have been estimated for Security B and Security O.

ScenarioSecurity BSecurity O

110%0%

1-3%5%

114%10%

Each scenario is equally likely to occur, and you plan to invest 40% of your funds in Security B and 60% in Security O.

Refer to the information above. What is the standard deviation of the rate of return of your portfolio? Round your answer to the nearest tenth of a percent.

Question 4 options:

0.0%

52.9%

17.6%

4.2%

Question 5 (1 point)

Which of the following is not a determinant of the risk of a portfolio?

Question 5 options:

the amount of money invested in each asset in the portfolio

the degree to which the returns of the assets in the portfolio move together

the expected returns on the individual assets in the portfolio

the number of assets in the portfolio

Question 6 (1 point)

Does the correlation of the individual securities returns affect the expected return on a portfolio of securities? True, it does, or false, it does not?

Question 6 options:

True

False

Question 7 (1 point)

The stock of the Goldy Corporation has a beta of -0.25. If the expected return on the market decreases by 4%, then the expected return on Goldy should

Question 7 options:

increase by 1%

decrease by 1%

increase by 1.6%

decrease by 1.6%

Question 8 (1 point)

You have analyzed four stocks and obtained the following results:

StockReturnStandardBeta

K22%35%2.8

I10%17%0.8

N8%15%0.2

G10%13%0.5

Refer to the information above. A risk-averse investor, who will be adding the stock to his already well-diversified portfolio, would choose to invest in Stock

Question 8 options:

K

I

N

G

Question 9 (1 point)

A portfolio manager boasted that his portfolio earned a return of 28% while the general market returned only 10% over that same period. He claims superior analytical abilities and is requesting a raise from you, his supervisor. How should you respond? You should examine the securities in his portfolio. If he is investing in high -beta stocks (i.e., > 1.0), he should be earning more than the general market since he is exposing your firm to more risk. True or false?

Question 9 options:

True

False

Question 10 (1 point)

Your firm uses 30% debt financing and 70% equity financing. The beta of the debt is 0.1 and the beta of the equity is 1.4. What is your firm's asset beta?

Question 10 options:

1.01

0.49

1.30

None of the above

Question 11 (1 point)

Refer to the information above. Calculate the beta of the portfolio.

Question 11 options:

0.972

0.944

1.200

This cannot be calculated without having any data about the returns of the market portfolio.

Question 12 (1 point)

If a firm is 100% equity-financed, then

Question 12 options:

the asset beta will be less than the market beta of the equity

the asset beta will be greater than the market beta of the equity

the asset beta will equal the market beta of the equity

the asset beta will be greater than it would have if the firm had used debt financing

Question 13 (1 point)

Your $500 million-dollar firm is financed with $200 million debt and $300 million equity. The beta of the debt is 0.2 and the equity beta is 1.0. If the firm retired all its debt and became 100% equity financed, what would the new equity beta be?

Question 13 options:

0.68

0.0068

1.0

0.08

Question 14 (1 point)

The main characteristics of any investment are investment and return and risk. True or False?

Question 14 options:

True

False

Question 15 (1 point)

Investors can compare alternative investments using holding period returns. True or false?

Question 15 options:

True

False

Question 16 (1 point)

Risk is the change that the actual return will differ from the expected outcome. True or false?

Question 16 options:

True

False

Question 17 (1 point)

Covariance and the correlation efficient are not related. True or false?

Question 17 options:

True

False

Question 18 (1 point)

The correlation coefficient shows how much variability there is in the return of assets. True or false?

Question 18 options:

True

False

Question 19 (1 point)

The coefficient of determination is calculated as the square of correlation coefficient. True or false?

Question 19 options:

True

False

Question 20 (1 point)

The residual variance describes the deviation of the asset returns from its characteristic line. True or false?

Question 20 options:

True

False