Unformatted text preview: [ ] a security that is undervalued [ ] a security which provides a return that is higher than expected v [ ] a security with a rewardtorisk ratio that is too low [ ] a security with a beta that is less than 1 [ ] a riskfree asset 16) The common stock of Olsen Shipping has an expected rate of return of 15.42 percent and a variance of .007248. What is the standard deviation of the returns on this stock? [ ] 6.91 percent v [ ] 8.51 percent [ ] 11.08 percent [ ] 13.13 percent [ ] 15.47 percent 17) Parker Sisters stock has an expected return of 12.8 percent with a standard deviation of 7.6 percent. Lowry Brothers stock has an expected return of 16.3 percent and a standard deviation of 13.9 percent. The covariance of the returns on these two stocks is 0.001842. What is the correlation coefficient? [ ] .083409 [ ] .088286 [ ] .163667 v [ ] .174366 [ ] .182121 18) You have a portfolio comprised of two stocks. Baker Markets stock is valued at $9,000 and has a variance of 0.0432. Smith & Sons stock is valued at $6,000 and has a variance of 0.0039. The covariance of these two stocks is 0.0018. What is the standard deviation of your portfolio? [ ] 11.67 percent [ ] 12.14 percent [ ] 12.50 percent v [ ] 13.05 percent [ ] 14.31 percent 19) If you borrow at the riskfree rate to increase the portfolio weight of a risky security you will _____ the expected portfolio rate of return and _____ the portfolio standard deviation. v [ ] increase; increase [ ] increase; decrease [ ] increase; not effect [ ] decrease; increase [ ] decrease; decrease 20) Home Depot has an estimated beta of 1.44. If the market return declines by 3 percent, the return on Home Depot will decline by _____ percent. [ ] 1.44 [ ] 1.56 [ ] 3.00 v [ ] 4.32 [ ] 4.44 21) You have compiled the following correlation coefficients related to stocks A, B, C, and D. Of the information provided, stocks _____ and _____ are the most interrelated and stocks _____ and _____ are the least interrelated. Stocks Correlation A, B .68 A, C .34 A, D .89 B, C .50 C, D .76 [ ] B, C; A, C [ ] A, C; A, D v [ ] A, D; A, C [ ] B, C; C, D [ ] A, D; B, C 22) The separation principle advocates that: I. investors will select a portfolio of risky assets from the efficient set of risky returns. II. investors will select the portfolio which lies at the tangency point between the capital market line and the efficient set of risky assets if they ignore their personal characteristics. III. investors will either borrow or lend at the riskfree rate depending upon their risk tolerance level. IV. all investors will eventually own identical investment portfolios. [ ] I and II only [ ] I and IV only [ ] II and III only v [ ] I, II, and III only [ ] I, II, III, and IV 23) Regardless of the desired level of risk for a portfolio, the return on the portfolio should always: [ ] be located at the minimal variance point....
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 Spring '08
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 Variance, Capital Asset Pricing Model, Financial Markets, Modern portfolio theory

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