Exam 2 Fall 2003 4030 - Finance 4030 001 004 Fall 2003...

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Finance 4030 001 & 004 Name________________________________________________ Fall 2003 Exam 2 October 15, 2003 1. The S&P 500 Index, the Wilshire 5000 Index, the Russell 3000 Index and the Lehman Aggregate Index share what construction characteristics? (3) i. geometric mean returns, weighted equally ii. arithmetic mean returns, weighted by price iii. arithmetic mean returns, weighted by capitalization iv. geometric mean returns, weighted by capitalization 2. What is the relationship between the Russell 1000 Index and the Russell 2000 Index? (2) 3. For the two stocks (A & B) below, calculate a price-weighted index return and a capitalization-weighed index return for period 1. (4) A B Price per share at time 0 $30 $90 Market capitalization at time 0 $4.5 Billion $500 Million Total Return for period 1 10% 20% 1
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Price Weighted_____________________________ Capitalization Weighted____________________ 4. What are the three main factors to consider in constructing an index? (3) 5. The four charts below present the risk/return trade-off for 2-asset portfolios with correlation coefficients of –1, 0, .5 and 1. Label each and, in a few words, describe why each graph appears as it does. (16) Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Expected return Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Expected return Coefficient__________ Coefficient__________ 2 of 12
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Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Expected return Portfolio Risk and Return 0% 4% 8% 12% 16% 0% 5% 10% 15% 20% 25% Standard Deviation Expected return Coefficient__________ Coefficient__________ 6. List two significant criticisms of the construction process for the Dow Jones Industrial Index.
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