Exam 500303 risk return | Management homework help

     

1.   Which one of the following categories of securities   had the highest average return for the period 1926–2013? 

 

  

A. Long-term     government bonds 

 

B. Small-company stocks 

 

C. Long-term     corporate bonds 

 

D. Large-company     stocks

 

2.   A stock has a beta of 1.2 and an expected return of   17 percent. A risk-free asset currently earns 5.1 percent. The beta of a   portfolio comprised of these two assets is 0.85. What percentage of the   portfolio is invested in the stock? 

 

  

A. 92 percent 

 

B. 77 percent 

 

 C. 71     percent 

 

D. 81 percent 

 

  

3.   _______ market efficiency suggests that at a       minimum, the current price of the stock reflects the stock’s own past       prices. 

 

  

A. Weak form 

 

B. Strong form         

 

C. Semistrong

 

D. Loose form 

 

4.   Six months ago, you purchased 100 shares of       stock in Global Trading at a price of $38.70 a share. The stock pays a       quarterly dividend of $.15 a share. Today, you sold all of your shares       for $40.10 per share. What’s the total amount of your dividend       income on this investment? 

 

  

A. $15 

 

B. $45 

 

C. $50 

 

 D. $30 

 

  

5.   Assume all stock prices fairly reflect all           of the available information on those stocks. Which one of the           following terms best defines the stock market under these           conditions? 

 

  

A. Evenly             distributed market 

 

B. Blume’s             market 

 

C. Efficient capital market 

 

D. Zero             volatility market

  

6.                 Suppose that you purchased 300 shares of a stock at $36 per               share, ignoring all commissions. Assume the stock paid a dividend               of $2.15 per share for the year. The stock price rose to $41.05               per share and was then sold at that price. What was the dividends               yield? (Round your answer to the nearest tenth of a percent.) 

 

  

A. 5.2 percent 

 

 B. 6 percent 

 

C. 5 percent 

 

D. 6.5 percent 

 

 

 

7.   Aimee is the owner of a stock with annual returns of   27 percent, –32 percent, 11 percent, and 23 percent for the last four years,   respectively. She thinks the stock may be able to achieve a return of 50   percent or more in a single year. What’s the probability that your friend is   correct? 

 

  

A. Greater than 1     percent but less than 2.5 percent 

 

B. Greater than 16     percent 

 

C. Greater than .5     percent but less than 1 percent 

 

D. Greater than 2.5 percent but less than 16 percent 

 

 

8.   Eliminating unsystematic risk by holding a portfolio   of different assets reflects 

 

  

A. the elimination     of systematic risk. 

 

B. beta     coefficiency. 

 

 C. the     principle of diversification. 

 

D. portfolio     variance spreading. 

 

 

9.   West Wind Tours stock is currently selling for $48 a   share. The stock has a dividend yield of 3.2 percent. How much dividend   income will you receive per year if you purchase 200 shares of this stock? 

 

  

A. $307.20 

 

B. $362.00 

 

C. $24.96 

 

D. $36.20 

 

  

10.   Systematic risk is measured by the 

 

  

A. beta. 

 

B. arithmetic         average. 

 

C. mean. 

 

D. geometric         average. 

 

11.   The market risk premium—the concept that investors   should be rewarded for taking on extra risk—is illustrated as the 

 

  

A. slope of the SML. 

 

B. y-access     intersection of the SML. 

 

C. x-access     intersection of the SML. 

 

D. peak of the     SML. 

 

 

12.   One year ago, you purchased a stock at a price of   $32.15. The stock pays quarterly dividends of $.20 per share. Today, the   stock is selling for $33.09 per share. What’s your capital gain on this   investment? 

 

  

A. $1.14 

 

B. $.94 

 

C. $1.04 

 

D. $.74 

 

  

13.   With regard to the efficient markets hypothesis     (EMH), which of the following answers illustrates market inefficiencies? 

 

  

 A.       Delayed reactions, overreactions, and corrections 

 

B. Insider       trading, corruption, and government bailouts 

 

C. An immediate       price fall after bad news is announced 

 

D. An immediate       price jump after good news is announced 

 

14.   The reward-to-risk ratio for stock A is     less than the reward-to-risk ratio of stock B. Stock A has a     beta of 0.82 and stock B has a beta of 1.29. This information     implies that 

 

  

A. stock A       is riskier than stock B, and both stocks are fairly priced. 

 

 B. either stock A is overpriced, stock B       is underpriced, or both. 

 

C. either stock A       is underpriced, stock B is overpriced, or both. 

 

D. stock A       is less risky than stock B, and both stocks are fairly priced. 

 

 

15.   Suppose you estimate a boom will occur only 45   percent of the time and that the expected return on the portfolio in such an   environment is 40 percent. You also estimate that a recession will occur 55   percent of the time and that the expected return in such an environment is 5   percent. What’s the expected return of the portfolio? 

 

  

 A. 20.75     percent 

 

B. 5 percent 

 

C. 40 percent 

 

D. 22.5 percent 

 

  

16.   How can the expected return of a portfolio be       calculated? 

 

  

A. Take a weighted average by taking the expected         return of each asset and multiplying by their proportion in the         portfolio. Add the results. 

 

B. Square the         expected returns before multiplying by the portfolio weights. Add each         of the results, and then take the square root of the sum. 

 

C. If the         portfolio has two assets, multiply the expected returns by 50 percent,         and then add the results. If the portfolio has three assets, multiply         the expected returns by 1/3, and so on. Then multiply         the result. The proportions of each asset do not affect the         answer. 

 

D. Expected         return can be calculated only with Excel. 

 

17.   How do you calculate risk premium? 

 

  

A. The risk-free     rate minus the expected return 

 

B. Expected return     plus the risk-free rate 

 

C. Expected return     divided by the risk-free rate 

 

D. Expected return minus the risk-free rate

 

18.   The common stock of United Industries has a beta of   1.34 and an expected return of 14.29 percent. The risk-free rate of return is   3.7 percent. What’s the expected market risk premium? 

 

  

 A. 7.90     percent 

 

B. 7.02 percent 

 

C. 11.22 percent 

 

D. 10.63 percent 

 

 

19.   The term “unsystematic risk” is   synonymous with which of the following? 

 

  

A. Undiversifiable     risk 

 

B. Systematic risk     

 

C. Beta risk 

 

 D.     Diversifiable risk 

 

20.   The intercept point of the security market line is   the rate of return that corresponds to 

 

  

A. a return of     zero. 

 

B. the market     rate. 

 

C. the risk-free rate. 

 

D. the market risk     premium. 

 

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