quiz3 - ity regardless of return(as long as it’s positive...

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Econ 134a Summer 2007 Quiz 3 Name: Enrolled Section: 9.30 or 12.30 1. As the corporate tax rate increases, net income (a) decreases (b) increases (c) may increase or decrease, depending on the depreciation schedule (d) doesn’t change, since any losses are offset by the depreciation tax shield 2. Consider the following information about Stock X: State of the World Probability Return Good 70% 20% Bad 30% -10% What is the variance of the return on Stock X? (a) 0.0189 (b) 1890 (c) 0.0261 (d) 2610 3. Your client dislikes risk. She asks you to choose a portfolio that with minimum volatil-
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Unformatted text preview: ity, regardless of return (as long as it’s positive, of course). You may invest in the following assets: Asset Expected Return Standard Deviation A 20% 20% B 5% 10% If σ A,B =-. 5, what should you do? (a) Invest solely in A. (b) Invest solely in B (c) Invest in a mix of A & B; see RWJ Ch 10.3 for a discussion on the benefits of diversification; in particular, p. 289 (d) Not enough information to answer the problem....
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