Q&A Hero

Q: Suppose you purchase one share of the stock of Volatile Engineering Corporation at the beginning of year 1 for $36. At the end of year 1, you receive a $2 dividend and buy one more share for $30. At the end of year 2, you receive total dividends of $4 (i.e., $2 for each share) and sell the shares for $36.45 each. The time-weighted return on your investment is A) -1.75%. B) 4.08%. C) 6.74%. D) 11.46%. E) 12.35%.

Q: Mutual funds show ________ evidence of serial correlation, and hedge funds show ________ evidence of serial correlation. A) almost no; almost no B) almost no; substantial C) substantial; substantial D) substantial; almost no E) modest; modest

Q: The comparison universe is A) a concept found only in astronomy. B) the set of all mutual funds in the world. C) the set of all mutual funds in the U.S. D) a set of mutual funds with similar risk characteristics to your mutual fund. E) None of the options are correct.

Q: 4) The comparison universe is not A) a concept found only in astronomy. B) the set of all mutual funds in the world. C) the set of all mutual funds in the U.S. D) a set of mutual funds with similar risk characteristics to your mutual fund. E) a concept found only in astronomy, the set of all mutual funds in the world, or the set of all mutual funds in the U.S.

Q: 5) ________ did not develop a popular method for risk-adjusted performance evaluation of mutual funds. A) Eugene Fama B) Michael Jensen C) William Sharpe D) Jack Treynor E) Eugene Fama and Michael Jensen

Q: ________ developed a popular method for risk-adjusted performance evaluation of mutual funds. A) Eugene Fama B) Michael Jensen C) William Sharpe D) Jack Treynor E) Michael Jensen, William Sharpe, and Jack Treynor

Q: 7) Henriksson (1984) found that, on average, betas of funds ________ during market advances. A) increased very significantly B) increased slightly C) decreased slightly D) decreased very significantly E) did not change

Q: xplanation: Portfolio betas should have a large value if the market is expected to perform well and a small value if the market is not expected to perform well; thus, these results reflect the poor timing ability of mutual fund managers. 8) Most professionally managed equity funds generally A) outperform the S&P 500 Index on both raw and risk-adjusted return measures. B) underperform the S&P 500 Index on both raw and risk-adjusted return measures. C) outperform the S&P 500 Index on raw return measures and underperform the S&P 500 Index on risk-adjusted return measures. D) underperform the S&P 500 Index on raw return measures and outperform the S&P 500 Index on risk-adjusted return measures. E) match the performance of the S&P 500 Index on both raw and risk-adjusted return measures.

Q: 14) Suppose two portfolios have the same average return and the same standard deviation of returns, but Aggie Fund has a lower beta than Raider Fund. According to the Treynor measure, the performance of Aggie Fund A) is better than the performance of Raider Fund. B) is the same as the performance of Raider Fund. C) is poorer than the performance of Raider Fund. D) cannot be measured as there are no data on the alpha of the portfolio.

Q: 16) Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a lower beta than Husker Fund. According to the Sharpe measure, the performance of Buckeye Fund A) is better than the performance of Husker Fund. B) is the same as the performance of Husker Fund. C) is poorer than the performance of Husker Fund. D) cannot be measured as there are no data on the alpha of the portfolio.

Q: 17) Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a lower beta than Husker Fund. According to the Treynor measure, the performance of Buckeye Fund A) is better than the performance of Husker Fund. B) is the same as the performance of Husker Fund. C) is poorer than the performance of Husker Fund. D) cannot be measured as there are no data on the alpha of the portfolio. E) None of the options are correct.

Q: 18) Suppose two portfolios have the same average return and the same standard deviation of returns, but Buckeye Fund has a higher beta than Husker Fund. According to the Treynor measure, the performance of Buckeye Fund A) is better than the performance of Husker Fund. B) is the same as the performance of Husker Fund. C) is poorer than the performance of Husker Fund. D) cannot be measured as there are no data on the alpha of the portfolio. E) None of the options are correct.

Q: 19) Morningstar's RAR method I. is one of the most widely-used performance measures. II. indicates poor performance by placing up to 5 darts next to the fund's name. III. computes fund returns adjusted for loads. IV. computes fund returns adjusted for risk. V. produces ranking results that are the same as those produced with the Sharpe measure. A) I, II, and IV B) I, III, and IV C) I, IV, and V D) I, II, IV, and V E) I, II, III, IV, and V

Q: 20) Suppose you purchase 100 shares of GM stock at the beginning of year 1 and purchase another 100 shares at the end of year 1. You sell all 200 shares at the end of year 2. Assume that the price of GM stock is $50 at the beginning of year 1, $55 at the end of year 1, and $65 at the end of year 2. Assume no dividends were paid on GM stock. Your dollar-weighted return on the stock will be ________ your time-weighted return on the stock. A) higher than B) the same as C) less than D) exactly proportional to E) More information is necessary to answer this question.

Q: 21) Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%, and the average return is 14%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as A) 11.5%. B) 14%. C) 15%. D) 16%.

Q: 22) Suppose the risk-free return is 3%. The beta of a managed portfolio is 1.75, the alpha is 0%, and the average return is 16%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as A) 12.3%. B) 10.4%. C) 15.1%. D) 16.7%.

Q: 23) Suppose the risk-free return is 6%. The beta of a managed portfolio is 1.5, the alpha is 3%, and the average return is 18%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as A) 12%. B) 14%. C) 15%. D) 16%.

Q: 24) Suppose a particular investment earns an arithmetic return of 10% in year 1, 20% in year 2, and 30% in year 3. The geometric average return for the period will be A) greater than the arithmetic average return. B) equal to the arithmetic average return. C) less than the arithmetic average return. D) equal to the market return. E) It cannot be determined from the information given.

Q: 25) Suppose you buy 100 shares of Abolishing Dividend Corporation at the beginning of year 1 for $80. Abolishing Dividend Corporation pays no dividends. The stock price at the end of year 1 is $100, $120 at the end of year 2, and $150 at the end of year 3. The stock price declines to $100 at the end of year 4, and you sell your 100 shares. For the four years, your geometric average return is A) 0.0%. B) 1.0%. C) 5.7%. D) 9.2%. E) 34.5%.

Q: In planning for retirement, an investor decides she will save $15,000 every year for 45 years. At a 10% return on her investment, how much money will she have at the end of 45 years (to the nearest hundred thousand dollars)? A) $1,400,000 B) $2,800,000 C) $4,900,000 D) $10,800,000

Q: Assume the risk-free interest rate is 10% and is equal to the fund's benchmark, the portfolio's net asset value is $100, and the fund's standard deviation is 20%. Also assume a time horizon of 1 year. Assuming a 2% management fee and a 20% incentive bonus, what is the expected management compensation per share if the fund's net asset value exceeds the stated benchmark? A) $4.24 B) $4 C) $3.84 D) $2.20

Q: Assume the risk-free interest rate is 10% and is equal to the fund's benchmark, the portfolio's net asset value is $100, and the fund's standard deviation is 20%. Also assume a time horizon of 1 year. What is the Black-Scholes value of the call option on the management incentive fee? A) $6.67 B) $8.18 C) $9.74 D) $10.22

Q: Consider a hedge fund with $400 million in assets, $60 million in debt, and 16 million shares at the start of the year and with $500 million in assets, $40 million in debt, and 20 million shares at the end of the year. During the year, investors have received an income dividend of $.75 per share. Assuming that the total expense ratio is 2.75%, what is the rate of return on the fund? A) 6.45% B) 8.52% C) 8.95% D) 9.46%

Q: Consider a hedge fund with $250 million in assets at the start of the year. If the gross return on assets is 18% and the total expense ratio is 2.5% of the year-end value, what is the rate of return on the fund? A) 15.05% B) 15.5% C) 17.25% D) 18%

Q: On Monday morning you sell one June T-bond futures contract at $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. Day Settle Monday $ 97,406.25 Tuesday $ 98,000.00 Wednesday $ 100,000.00 The cumulative rate of return on your investment after Wednesday is a ________. A) 79.9% loss B) 2.6% loss C) 33% gain D) 53.9% loss

Q: On Monday morning you sell one June T-bond futures contract at $97,843.75. The contract's face value is $100,000. The initial margin requirement is $2,700, and the maintenance margin requirement is $2,000 per contract. Use the following price data to answer the following questions. Day Settle Monday $ 97,406.25 Tuesday $ 98,000.00 Wednesday $ 100,000.00 At the close of day on Tuesday your cumulative rate of return on your investment is ________. A) 16.2% B) −5.8% C) −0.16% D) −2.2%

Q: The current stock price of KMW is $27, the risk-free rate of return is 4%, and the standard deviation is 30%. What is the price of a 63-day call option with an exercise price of $25? A) $2.50 B) $2.65 C) $2.89 D) $3.12

Q: A stock priced at $65 has a standard deviation of 30%. Three-month calls and puts with an exercise price of $60 are available. The calls have a premium of $7.27, and the puts cost $1.10. The risk-free rate is 5%. Since the theoretical value of the put is $1.525, you believe the puts are undervalued. If you construct a riskless arbitrage to exploit the mispriced puts, your arbitrage profit will be ________. A) $5.75 B) $6.17 C) $0.96 D) $0.42

Q: Calculate the price of a call option using the Black Scholes model and the following data: stock price = $47.30, exercise price = $50, time to expiration = 85 days, risk-free rate = 3%, standard deviation = 35%. A) $1.11 B) $2.22 C) $3.33 D) $4.44

Q: You would like to hold a protective put position on the stock of Avalon Corporation to lock in a guaranteed minimum value of $50 at year-end. Avalon currently sells for $50. Over the next year, the stock price will increase by 10% or decrease by 10%. The T-bill rate is 5%. Unfortunately, no put options are traded on Avalon Co. Suppose the desired put options with X = 50 were traded. What would be the hedge ratio for the option? A) −1 B) −0.5 C) 0.5 D) 1

Q: The stock price of Bravo Corp. is currently $100. The stock price a year from now will be either $160 or $60 with equal probabilities. The interest rate at which investors invest in riskless assets is 6%. Using the binomial OPM, the value of a put option with an exercise price of $135 and an expiration date 1 year from now should be worth ________ today. A) $34.09 B) $37.50 C) $38.21 D) $45.45

Q: The stock price of Apax Inc. is currently $105. The stock price a year from now will be either $130 or $90 with equal probabilities. The interest rate at which investors can borrow is 10%. Using the binomial OPM, the value of a call option with an exercise price of $110 and an expiration date 1 year from now should be worth ________ today. A) $11.59 B) $15 C) $20 D) $40

Q: The current stock price of Howard & Howard is $64, and the stock does not pay dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard deviation of H&H's stock is 20%. You want to purchase a put option on this stock with an exercise price of $55 and an expiration date 73 days from now. Using Black-Scholes, the put option should be worth ________ today. A) $0.01 B) $0.07 C) $9.26 D) $9.62

Q: The current stock price of Howard & Howard is $64, and the stock does not pay dividends. The instantaneous risk-free rate of return is 5%. The instantaneous standard deviation of H&H's stock is 20%. You want to purchase a call option on this stock with an exercise price of $55 and an expiration date 73 days from now. Using the Black-Scholes OPM, the call option should be worth ________ today. A) $0.01 B) $0.08 C) $9.26 D) $9.62

Q: The current stock price of National Paper is $69, and the stock does not pay dividends. The instantaneous risk-free rate of return is 10%. The instantaneous standard deviation of National Paper's stock is 25%. You want to purchase a put option on this stock with an exercise price of $70 and an expiration date 73 days from now. Using the Black-Scholes, the put option should be worth ________ today. A) $1.50 B) $2.88 C) $2.55 D) $3.00

Q: The current stock price of National Paper is $69, and the stock does not pay dividends. The instantaneous risk-free rate of return is 10%. The instantaneous standard deviation of National Paper's stock is 25%. You want to purchase a call option on this stock with an exercise price of $70 and an expiration date 73 days from now. Using the Black-Scholes OPM, the call option should be worth ________ today. A) $2.50 B) $2.94 C) $3.26 D) $3.50

Q: The current stock price of Alcoco is $70, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco's stock is 40%. You want to purchase a put option on this stock with an exercise price of $75 and an expiration date 30 days from now. According to the Black-Scholes OPM, you should hold ________ shares of stock per 100 put options to hedge your risk. A) 30 B) 34 C) 69 D) 74

Q: The current stock price of Alcoco is $70, and the stock does not pay dividends. The instantaneous risk-free rate of return is 6%. The instantaneous standard deviation of Alcoco's stock is 40%. You want to purchase a call option on this stock with an exercise price of $75 and an expiration date 30 days from now. Based on the Black-Scholes OPM, the call option's delta will be ________. A) 0.28 B) 0.31 C) 0.62 D) 0.70

Q: The financial statements of Flathead Lake Manufacturing Company are shown below. Income Statement 2017 Sales $ 9,300,000 Cost of Goods Sold 5,750,000 Depreciation Expense 550,000 Gross Profit $ 3,000,000 Selling and Administrative Expenses 2,200,000 EBIT $ 800,000 Interest Expense 200,000 Income before Tax $ 600,000 Taxes 375,000 Net Income $ 225,000 Flathead Lake Manufacturing Comparative Balance Sheets 2017 2016 Cash $ 50,000 $ 40,000 Accounts Receivable 570,000 600,000 Inventory 530,000 460,000 Total Current Assets $ 1,150,000 $ 1,100,000 Fixed Assets 2,050,000 1,400,000 Total Assets $ 3,200,000 $ 2,500,000 Accounts Payable $ 320,000 $ 300,000 Bank Loans 480,000 400,000 Total Current Liabilities $ 800,000 $ 700,000 Long-term Bonds 1,500,000 1,000,000 Total Liabilities $ 2,300,000 $ 1,700,000 Common Stock (200,000 shares) 200,000 200,000 Retainded Earnings 700,000 600,000 Total Equity $ 900,000 $ 800,000 Total Liabilities and Equity $ 3,200,000 $ 2,500,000 Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's compound leverage ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A) 1.5 B) 2 C) 2.5 D) 3

Q: The financial statements of Flathead Lake Manufacturing Company are shown below. Income Statement 2017 Sales $ 9,300,000 Cost of Goods Sold 5,750,000 Depreciation Expense 550,000 Gross Profit $ 3,000,000 Selling and Administrative Expenses 2,200,000 EBIT $ 800,000 Interest Expense 200,000 Income before Tax $ 600,000 Taxes 375,000 Net Income $ 225,000 Flathead Lake Manufacturing Comparative Balance Sheets 2017 2016 Cash $ 50,000 $ 40,000 Accounts Receivable 570,000 600,000 Inventory 530,000 460,000 Total Current Assets $ 1,150,000 $ 1,100,000 Fixed Assets 2,050,000 1,400,000 Total Assets $ 3,200,000 $ 2,500,000 Accounts Payable $ 320,000 $ 300,000 Bank Loans 480,000 400,000 Total Current Liabilities $ 800,000 $ 700,000 Long-term Bonds 1,500,000 1,000,000 Total Liabilities $ 2,300,000 $ 1,700,000 Common Stock (200,000 shares) 200,000 200,000 Retainded Earnings 700,000 600,000 Total Equity $ 900,000 $ 800,000 Total Liabilities and Equity $ 3,200,000 $ 2,500,000 Note: The common shares are trading in the stock market for $15 per share. Refer to the financial statements of Flathead Lake Manufacturing Company. The firm's inventory turnover ratio is ________. (Please keep in mind that when a ratio involves both income statement and balance sheet numbers, the balance sheet numbers for the beginning and end of the year must be averaged.) A) 11.6 B) 10.2 C) 9.5 D) 7.7

Q: ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. What price do you expect ART shares to sell for in 4 years? A) $53.96 B) $44.95 C) $41.68 D) $39.76

Q: ART has come out with a new and improved product. As a result, the firm projects an ROE of 25%, and it will maintain a plowback ratio of 0.20. Its earnings this year will be $3 per share. Investors expect a 12% rate of return on the stock. What is the present value of growth opportunities for ART? A) $8.57 B) $9.29 C) $14.29 D) $16.29

Q: Westsyde Tool Company is expected to pay a dividend of $2 in the upcoming year. The risk-free rate of return is 6%, and the expected return on the market portfolio is 12%. Analysts expect the price of Westsyde Tool Company shares to be $29 a year from now. The beta of Westsyde Tool Company's stock is 1.2. Using a one-period valuation model, the intrinsic value of Westsyde Tool Company stock today is ________. A) $24.29 B) $27.39 C) $31.13 D) $34.52

Q: Suppose that in 2018 the expected dividends of the stocks in a broad market index equaled $240 million when the discount rate was 8% and the expected growth rate of the dividends equaled 6%. Using the constant-growth formula for valuation, if interest rates increase to 9%, the value of the market will change by ________. A) -10% B) -20% C) -25% D) -33%

Q: Firm B produces gadgets. The price of gadgets is $2 each. Firm B has total fixed costs of $300,000 and variable costs of $1.40 per gadget. The corporate tax rate is 40%. What is the breakeven number of gadgets B must sell to make a zero after-tax profit? A) 300,000 B) 400,000 C) 500,000 D) 600,000

Q: A 20-year maturity corporate bond has a 6.5% coupon rate (the coupons are paid annually). The bond currently sells for $925.50. A bond market analyst forecasts that in 5 years yields on such bonds will be at 7%. You believe that you will be able to reinvest the coupons earned over the next 5 years at a 6% rate of return. What is your expected annual compound rate of return if you plan on selling the bond in 5 years? A) 7.37% B) 7.56% C) 8.12% D) 8.54%

Q: A 20-year maturity bond pays interest of $90 once per year and has a face value of $1,000. Its yield to maturity is 10%. You expect that interest rates will decline over the upcoming year and that the yield to maturity on this bond will be only 8% a year from now. Using horizon analysis, the return you expect to earn by holding this bond over the upcoming year is ________. A) 10% B) 12% C) 21.6% D) 29.6%

Q: You buy a 10-year $1,000 par value 4% annual-payment coupon bond priced to yield 6%. You do not sell the bond at year-end. If you are in a 15% tax bracket, at year-end you will owe taxes on this investment equal to ________. A) $9.10 B) $4.25 C) $7.68 D) $5.20

Q: You buy a 10-year $1,000 par value zero-coupon bond priced to yield 6%. You do not sell the bond. If you are in a 28% tax bracket, you will owe taxes on this investment after the first year equal to ________. A) $0 B) $4.27 C) $9.38 D) $33.51

Q: The yield to maturity of a 10-year zero-coupon bond with a par value of $1,000 and a market price of $625 is ________. A) 4.8% B) 6.1% C) 7.7% D) 10.4%

Q: Assuming semiannual compounding, a 20-year zero coupon bond with a par value of $1,000 and a required return of 12% would be priced at ________. A) $97.22 B) $104.49 C) $364.08 D) $732.14

Q: A corporate bond has a 10-year maturity and pays interest semiannually. The quoted coupon rate is 6%, and the bond is priced at par. The bond is callable in 3 years at 110% of par. What is the bond's yield to call? A) 6.72% B) 9.17% C) 4.49% D) 8.98%

Q: You purchased a 5-year annual-interest coupon bond 1 year ago. Its coupon interest rate was 6%, and its par value was $1,000. At the time you purchased the bond, the yield to maturity was 4%. If you sold the bond after receiving the first interest payment and the bond's yield to maturity had changed to 3%, your annual total rate of return on holding the bond for that year would have been approximately ________. A) 5% B) 5.5% C) 7.6% D) 8.9%

Q: A zero-coupon bond has a yield to maturity of 5% and a par value of $1,000. If the bond matures in 16 years, it should sell for a price of ________ today. A) $458.11 B) $641.11 C) $789.11 D) $1,100.11

Q: A coupon bond that pays interest annually has a par value of $1,000, matures in 5 years, and has a yield to maturity of 12%. If the coupon rate is 9%, the intrinsic value of the bond today will be ________. A) $856.04 B) $891.86 C) $926.47 D) $1,000

Q: A coupon bond that pays interest semiannually has a par value of $1,000, matures in 8 years, and has a yield to maturity of 6%. If the coupon rate is 7%, the intrinsic value of the bond today will be ________. A) $1,000 B) $1,062.81 C) $1,081.82 D) $1,100.03

Q: A callable bond pays annual interest of $60, has a par value of $1,000, matures in 20 years but is callable in 10 years at a price of $1,100, and has a value today of $1055.84. The yield to call on this bond is ________. A) 6% B) 6.58% C) 7.2% D) 8%

Q: A coupon bond that pays interest of 4% annually has a par value of $1,000, matures in 5 years, and is selling today at $785. The actual yield to maturity on this bond is ________. A) 7.24% B) 8.82% C) 9.12% D) 9.62%

Q: On day 1, the stock price of Ford was $12 and the automotive stock index was 127. On day 2, the stock price of Ford was $15 and the automotive stock index was 139. Consider the ratio of Ford to the automotive stock index at day 1 and day 2. Ford is ________ the automotive industry, and technical analysts who follow relative strength would advise ________ the stock. A) outperforming; buying B) outperforming; selling C) underperforming; buying D) underperforming; selling

Q: Day 1 2 3 4 Advances 870 760 960 840 Declines 880 990 790 910 Volume advancing(m) 580 620 480 510 Volume declining(m) 670 580 720 520 Yield on top-rated corporate bonds 6.8 % 6.7 % 6.7 % 6.6 % Yield on intermediate-grade corporate bonds 7.4 % 7.4 % 7.5 % 7.6 % From day 1 to day 4, the TRIN has ________ and is ________. A) increased; bullish B) increased; bearish C) decreased; bullish D) decreased; bearish

Q: At the end of July, the average yields on 10 top-rated corporate bonds and 10 intermediate-grade bonds were 7.65% and 8.42%, respectively. At the end of August, the average yields on 10 top-rated corporate bonds and 10 intermediate-grade bonds were 6% and 6.71%, respectively. The confidence index ________ during August, and bond technical analysts are likely to be ________. A) increased; bullish B) increased; bearish C) decreased; bullish D) decreased; bearish

Q: You consider buying a share of stock at a price of $25. The stock is expected to pay a dividend of $1.50 next year, and your advisory service tells you that you can expect to sell the stock in 1 year for $28. The stock's beta is 1.1, rf is 6%, and E[rm] = 16%. What is the stock's abnormal return? A) 1% B) 2% C) -1% D) -2%

Q: If the simple CAPM is valid and all portfolios are priced correctly, which of the situations below is possible? Consider each situation independently, and assume the risk-free rate is 5%. A) Portfolio Expected Return Beta A 15% 1.2 Market 15% 1.0 B) Portfolio Expected Return Beta A 20% 12% Market 15% 20 C) Portfolio Expected Return Beta A 20% 1.2 Market 15% 1.0 D) Portfolio Expected Return Beta A 30% 2.5 Market 15% 1.0 A) Option A B) Option B C) Option C D) Option D

Q: Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%. Portfolio X has an expected return of 14% and a beta of 1. Portfolio Y has an expected return of 9.5% and a beta of .25. In this situation, you would conclude that portfolios X and Y ________. A) are in equilibrium B) offer an arbitrage opportunity C) are both underpriced D) are both fairly priced

Q: You find that the annual Sharpe ratio for stock A returns is equal to 1.8. For a 3-year holding period, the Sharpe ratio would equal ________. A) 1.8 B) 2.48 C) 3.12 D) 5.49

Q: An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coefficient between the returns on A and B is 0%. The rate of return for stocks A and B is 20% and 10% respectively. The standard deviation of return on the minimum-variance portfolio is ________. A) 0% B) 6% C) 12% D) 17%

Q: An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coefficient between the returns on A and B is 0%. The rate of return for stocks A and B is 20% and 10% respectively. The expected return on the minimum-variance portfolio is approximately ________. A) 10% B) 13.6% C) 15% D) 19.41%

Q: An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coefficient between the returns on A and B is .35. The expected return on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would be invested in stock B is approximately ________. A) 45% B) 67% C) 85% D) 92%

Q: An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is .4. The risk-free rate of return is 5%. The standard deviation of returns on the optimal risky portfolio is ________. A) 25.5% B) 22.3% C) 21.4% D) 20.7%

Q: An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is .4. The risk-free rate of return is 5%. The expected return on the optimal risky portfolio is approximately ________. (Hint: Find weights first.) A) 14% B) 16% C) 18% D) 19%

Q: An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is ________. A) 0% B) 5% C) 7% D) 20%

Q: An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The expected return on the optimal risky portfolio is ________. A) 14% B) 15.6% C) 16.4% D) 18%

Q: An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The proportion of the optimal risky portfolio that should be invested in stock A is ________. A) 0% B) 40% C) 60% D) 100%

Q: You have the following rates of return for a risky portfolio for several recent years. Assume that the stock pays no dividends. Year Beginning of Year Price # of Shares Bought or Sold 2014 $ 50.00 100 bought 2015 $ 55.00 50 bought 2016 $ 51.00 75 sold 2017 $ 54.00 75 sold What is the geometric average return for the period? A) 2.87% B) .74% C) 2.6% D) 2.21%

Q: Two assets have the following expected returns and standard deviations when the risk-free rate is 5%: Asset A E(rA) = 10% σA = 20% Asset B E(rB) = 15% σB = 27% An investor with a risk aversion of A = 3 would find that ________ on a risk-return basis. A) only asset A is acceptable B) only asset B is acceptable C) neither asset A nor asset B is acceptable D) both asset A and asset B are acceptable

Q: Treasury bills are paying a 4% rate of return. A risk-averse investor with a risk aversion of A = 3 should invest entirely in a risky portfolio with a standard deviation of 24% only if the risky portfolio's expected return is at least ________. A) 8.67% B) 9.84% C) 21.28% D) 14.68%

Q: Consider a mutual fund with $300 million in assets at the start of the year and 12 million shares outstanding. If the gross return on assets is 18% and the total expense ratio is 2% of the year-end value, what is the rate of return on the fund? A) 15.64% B) 16% C) 17.25% D) 17.5%

Q: The Hydro Index is a price weighted stock index based on the 5 largest boat manufacturers in the nation. The stock prices for the five stocks are $10, $20, $80, $50 and $40. The price of the last stock was just split 2 for 1 and the stock price was halved from $40 to $20. What is the new divisor for a price weighted index? A) 5.00 B) 4.85 C) 4.50 D) 4.75

Q: If a Treasury note has a bid price of $996.25, the quoted bid price in the Wall Street Journal would be ________. A) 99:5/8 B) 99:6/10 C) 99.6250 D) none of the options

Q: In planning for retirement, an investor decides she will save $15,000 every year for 45 years. At a 10% return on her investment, how much money will she have at the end of 45 years (to the nearest hundred thousand dollars)? A) $1,400,000 B) $2,800,000 C) $4,900,000 D) $10,800,000