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FINC314 Potential Final - Sample Exam#2 1 Multiple...

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Sample Exam #2 1. Multiple Choice (28 points) Choose the best answer for each of the following questions. The questions are worth 4 points each. 1. Consider the four risky securities described below. Which of these securities would be the best to combine with a Treasury Bill that pays a risk-free rate of 7.0%? a) Security A : E(R)=10% σ =14.0% b) Security B : E(R)=15% σ =19.0% c) Security C : E(R)=21% σ =19.0% d) Security D : E(R)=18% σ =14.0% 2. Given the two security choices described below, which security would be selected by a risk-averse investor? Security A is a risk-free security with a return equal to 8.0%. Security B is a risky security that pays -4% or +20% with equal probability. 3. For each individual investor, the optimal combination of a risky security and a risk- free security is determined by:
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