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Unformatted text preview: f you sell all of your investment in A and invest the proceeds in a risk-free asset, your new portfolio beta will be: [ ] 0.85. [ ] 1.20. v [ ] 1.30. [ ] 1.55. [ ] 1.63. 48) Currently, Sand Stone Gems has a return of 15.6 percent for the year and has an average return for the past ten years of 12.1 percent. Meanwhile, Deep Creek Mines has a return of 6.7 percent for the year and an average return for the past ten years of 9.1 percent. Given this, you can assume that the: [ ] standard deviation of the returns on Sand Stone Gems is negative. [ ] standard deviation of the returns on Deep Creek Mines is negative. v [ ] covariance of the returns on these two stocks is negative. [ ] covariance of the returns on these two stocks is zero. [ ] correlation of the returns on these two stocks is zero. 49) Beta is equal to: [ ] Var(Ri, RM) / s2(RM) [ ] Var(Ri, RM) / s2(Ri) [ ] Cov(Ri, RM) / s(Ri) [ ] Cov(Ri, RM) / s2(Ri) v [ ] Cov(Ri, RM) / s2(RM) 50) Two stocks have the following expected returns given various states of the economy. Each state of the economy has an equal chance of occurrence. What is the covariance of the returns on these two stocks? Economic Expected Expected State Return on A Return on B Boom .147 .098 Normal .114 .101 Recession .021 .149 v [ ] -.001221 [ ] -.001327 [ ] -.001384 [ ] -.001942 [ ] -.001973 51) A typical investor tends to be _____ and therefore _____ a fair gamble. [ ] risky; prefers [ ] risky; avoids [ ] risk neutral; prefers [ ] risk adverse; prefers v [ ] risk adverse; avoids 52) Which one of the following statements is correct? [ ] The variance is easier to understand than the standard deviation. [ ] When comparing securities, low-variance securities are high-standard deviation securities. [ ] A negative variance security has less volatility that a positive variance security. [ ] The correlation is the square root of the covariance. v [ ] The correlation coefficient must be greater than or equal to -1 and equal to or less than +1. 53) If the assumption of homogeneous expectations were to exist for all investors and all investors owned a risky portfolio, that portfolio would consist of: [ ] purely risk-free securities. [ ] 50 percent risk-free securities and 50 percent risky securities. [ ] a solitary stock. v [ ] the market portfolio. [ ] risky securities which would vary by individual investor. 54) Which of the following affect the variance of a portfolio? I. the portfolio weight of each individual security II. the variance of the individual securities held within the portfolio III. whether the covariance between the individual securities is positive or negative IV. the value of the covariance between the individual securities held within the portfolio [ ] I and II only [ ] III and IV only [ ] I, II, and III only [ ] II, III, and IV only v [ ] I, II, III, and IV 55) Stock A has a beta of 1.19 a...
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This note was uploaded on 06/15/2008 for the course ACC 501 504 taught by Professor Na during the Spring '08 term at University of Texas at Austin.
- Spring '08