Sample Midterm II

Sample Midterm II - Name Date Use the following information...

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1 Name: __________________________ Date: _____________ Use the following information for question 1: Standard Deviation Beta Security X 0.35 1.45 Security Y 0.28 1.06 Security Z 0.44 1.22 1. Which security has the greatest expected return? A) X because it has the largest beta coefficient. B) Z because it has the highest ratio of standard deviation to beta. C) Y because it has the lowest beta coefficient, and therefore the lowest risk. D) It is not possible to tell given the informa tion above. E) Y because it has the largest standard deviation. 2. What is the beta for a portfolio equally weighted in four assets: A, the market portfolio; B, which has half the market risk of A; C, which has twice the market risk of A; and D, which is risk - free? Use the following information for question 3: State Probability Return on A Return on B Boom .65 30% 5% Bust .35 10 % 20 % 3. What is the expected return on a po rtfolio that is equally - weighted amongst A, B, and the risk - free asset? The risk free rate is 5%. 4. G OOGLE stock has a B eta of 2. If the expected return on the market portfolio is 8% and the Treasury- Bill s yield 4%, what is the expected rate of return on GOOGLE stock?

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2 5 . GOOGLE stock has a Beta of 2. IBM stock has a Beta of 3. YAHOO stock has a Beta of 1. What is the expected return on an equally weighted portfolio of G OOGLE, IBM, and YAHOO stocks if the expected return on the market portfolio is 8% and the Treasury - Bills yield 4 %? A) 10% B) 8% C) 12% D) 14% E) 11%
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