BFW3121_Mock Exam 2 Answers.pdf - BFW3121 Investments and Portfolio Management BFW3121 Mock Examination TWO Solutions Part I Multiple Choice Questions(2

BFW3121_Mock Exam 2 Answers.pdf - BFW3121 Investments and...

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BFW3121Investments and Portfolio ManagementBFW3121 Mock Examination TWO Solutions Part I Multiple Choice Questions (2 marks each, 40 marks total) 1.Joanne invested $15,000 six years ago. Her arithmetic average return on this investment is 8.72 percent, and her geometric average return is 8.50 percent. What is Joanne's portfolio worth today? A. $23,989B. $24,472C. $26,409D. $26,514E. $26,766Answer: B FV = $15,000 × (1 + .085)6= $24,472.012.Which one of the following statements is correct? 3.An asset had annual returns of 13, 10, -14, 3, and 36 percent, respectively, for the past five years.What is the standard deviation of these returns?
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BFW3121 Dr. Liang Zhang Page 2 of 15 Mean = (.13 + .10 - .14 + .03 + .36)/5 = .096Var = [(.13 - .096)2+ (.10 - .096)2+ (-.14 - .096)2+ (.03 - .096)2+ (.36 - 096)2]/(5 - 1) = .032735Std Dev = (.032735) = 18.09 percent 4.A brokerage account in which purchases can be made using credit is referred to as which type of account? 5.The determination of which individual stocks to purchase within a particular asset class is referred to as: A. security selection.B. asset allocation.C. security analysis.D. market timing.E. market selection.Answer: A
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BFW3121 Dr. Liang Zhang Page 3 of 15 6.You purchased 1,000 shares of stock at $42 a share. The stock is currently selling for $45 a share. The initial margin was 70 percent and the maintenance margin is 30 percent. What is your current margin position? Margin loan = 1,000 × $42 × (1 - .70) = $12,600Current equity = (1,000 × $44) - $12,600 = $32,400Margin position = $32,400/(1,000 × $44) = 72.00 percent7.Tony purchased 100 shares of T-Rex stock for $43 a share. On the same day, Sam also purchased 100 shares of T-Rex stock for $43 a share. Tony paid cash for his purchase while Sam used margin. The initial margin requirement on this stock is 60 percent while the maintenance margin is 40 percent. Both Tony and Sam sold their shares after eight months at a price of $40 a share. The stock pays no dividends. Tony had a holding period percentage return of _____ percent as compared to Sam's _____ percent return. Ignore margin interest and trading costs. Tony's HPR without margin = [100 × ($40 - $43)]/(100 × $43) = -6.98 percentSam's HPR with margin = [100 × ($40 - $43)]/(100 × $43 × .60) = -11.63 percent
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