FIN 420 - Exam 2.docx - FIN 420 Exam 2 Q You bought shares in a company at $92.50 on January 2nd and during the year it paid dividends of $1.75 per

FIN 420 - Exam 2.docx - FIN 420 Exam 2 Q You bought shares...

This preview shows page 1 - 2 out of 5 pages.

FIN 420 - Exam 2 Q: You bought shares in a company at $92.50 on January 2nd and during the year it paid dividends of $1.75 per share. At the end of the year, it was trading at $96.25. If inflation is 2%, then what was your real return on this investment? A: The first step is to find the holding period return (HPR) (96.25-92.50+1.75)/92.50 = 5.95% Then adjust this nominal return into real terms using the Fisher Effect 1.0595 = (1+r) x 1.02 1.0595/1.02 = 1.0387 so, the real rate of return is 3.87% Q: A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe ratio of ____________. A: (15-4.5)/25 = .42 Q: Portfolio A has a beta of .2 and an expected return of 13%. Portfolio B has a beta of .4 and an expected return of 15%. The risk-free rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________. (HINT: How can you test for equilibrium using the data provided?) A: A; B (13-10)/.2 > (15-10)/.4 Q: A stock has returns of 12%, 4%, 8.75%, 5.1%, -12%, and 9.15% over the last 6 years. What is a 95% confidence interval for this stock? A: -12.68% to 21.68% Q: Conceptually, the Value at Risk model is an attempt to measure __________________. A: the dollar amount at risk in an extreme lower tail risk event. Q: Market risk is called either______________ or _______________. A: systematic risk; nondiversifiable risk Q: You invest $1,000 in a portfolio, which is composed of a risky asset with an expected rate of return of 16% and a Treasury bill with a rate of return of 6%. If your goal is to have $1,100 at the end of one year, then you would need to invest _________ in the risky asset and _____________in the Treasury bill. (HINT: How can you use what you know about HPRs to get
Image of page 1
Image of page 2

You've reached the end of your free preview.

Want to read all 5 pages?

  • Fall '09
  • JOHNSON,KAY

What students are saying

  • Left Quote Icon

    As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

    Student Picture

    Kiran Temple University Fox School of Business ‘17, Course Hero Intern

  • Left Quote Icon

    I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

    Student Picture

    Dana University of Pennsylvania ‘17, Course Hero Intern

  • Left Quote Icon

    The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

    Student Picture

    Jill Tulane University ‘16, Course Hero Intern

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes
A+ icon
Ask Expert Tutors