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Finance MBA help Risk and Return

1.

What is the expected return for an asset with the following probabilities and returns:

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Economy  Probability  Return
Poor   10%  -20%
Sluggish  25%  -5%
Moderate  30%  12%
Good  25%  24%
Boom  10%  55%

 11.45%

 11.85%

 12.00%

 12.25%

 Not enough information

2.

What is the standard deviation of the returns for a stock with the following probabilities and returns:

Economy  Probability  Return
Poor   10%  -20%
Sluggish  25%  -5%
Moderate  30%  12%
Good  25%  24%
Boom  10%  55%

 19.89%

 3.96%

 25.69%

 21.45%

 28.72%

3.

What is the expected return for an asset with annual returns for the last 12 years of:
4.5%
6.9%
-13.2%
18.9%
24.9%
-3.8%
14.2%
-18.7%
1.9%
6.8%
14.1%
37.2%

 8.7%

 Not enough information

 7.81%

 8.51%

 9.12%

4.

What is the standard deviation for the following sample of asset returns:
4.5%
6.9%
-13.2%
18.9%
24.9%
-3.8%
14.2%
-18.7%
1.9%
6.8%
14.1%
37.2%

 14.96%

 31.1%

 2.56%

 2.44%

 15.63%

5.

What is the portfolio beta for a pool of investments as follows:
Asset  Investment  Beta
A  \$1,000  .75
B  \$2,000  1.20
C  \$3,000  1.95

6.

What is the beta for an asset with an expected return of 12.5% if the risk free rate is 2.0% and the market risk premium is 7.5%?

7.

What is the expected return for an asset with a beta of 1.1 if the risk free rate is 1.5% and the required rate of return on the market is 9.5%?

 10.3%

 10.4%

 10.1%

 9.9%

 9.7%

8.

The tighter the probability distribution of its expected future returns, the greater the risk of a given investment as measured by its standard deviation.

 True

 False

9.

You are considering investing in one of the these three stocks:

 Stock Standard Deviation Beta A 20% 0.59 B 10% 0.61 C 12% 1.29

If you are a strict risk minimizer, you would choose Stock ____ if it is to be held in isolation and Stock ____ if it is to be held as part of a well-diversified portfolio.

 B: A

 A; A

 C: A

 A; B

 C: B

10.

Stock A’s beta is 1.7 and Stock B’s beta is 0.7. Which of the following statements must be true about these securities? (Assume market equilibrium.)

 The expected return on Stock B should be greater than that on A.

 Stock B must be a more desirable addition to a portfolio than A.

 Stock A must be a more desirable addition to a portfolio than B.

 The expected return on Stock A should be greater than that on B.

 When held in isolation, Stock A has more risk than Stock B.

11.

Which of the following statements is CORRECT?

 The higher the correlation between the stocks in a portfolio, the lower the risk inherent in the portfolio.

 An investor can eliminate almost all risk if he or she holds a very large and well diversified portfolio of stocks.

 Once a portfolio has about 40 stocks, adding additional stocks will not reduce its risk by even a small amount.

 An investor can eliminate almost all market risk if he or she holds a very large and well diversified portfolio of stocks.

 An investor can eliminate almost all diversifiable risk if he or she holds a very large, well-diversified portfolio of stocks.