FinalExam2011_Solution

FinalExam2011_Solution - Final Exam FIN 308 Capital Markets...

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1 Final Exam FIN 308 – Capital Markets and Investment Strategy February 22, 2011 Name: ________ANSWER KEY__________________________ Please circle your class time : A) 10:00 – 11:30 am B) 1:00 – 2:30 pm C) 2:30 - 4 pm This exam has two parts. The first part contains 8 multiple choice questions and the second part contains 3 problem questions. The last two pages are left blank. The grading will be solely based on your answers on the exam book. You have 120 minutes to complete this exam. The exam ends sharply. You need to answer these questions without consulting anyone. This is a closed-book exam. You can only use one two-sided letter-sized sheet with formulas and other information, and a calculator. Manage your time wisely. The total number of points on this exam is 120 points. Wrong answers with partially correct work will receive partial credit. Computation steps are required for some questions (Please read questions carefully for the requirement). No credits will be given if you do not show the computation steps for these questions. I do not violate the Honor Code for this examination Signature: ________________________________________ Good luck. Have a great spring break!
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Part I 1. Multiple Choice (25 Points) This problem includes eight multiple-choice questions. Choose only one answer for each question. You do not have to explain why you have selected a particular one. If you feel that a question is ambiguous, feel free to write a justification for your answer on the test sheet. 1. You have $500,000 available to invest. The risk-free rate as well as your borrowing rate is 8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should _________. A. invest $125,000 in the risk-free asset B. invest $375,000 in the risk-free asset C. borrow $125,000 D. borrow $375,000 2. Adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the ______. A. up, right B. up, left C. down, right D. down, left 3. Decreasing the number of stocks in a portfolio from 50 to 10 would likely ________. A. increase the systematic risk of the portfolio B. increase the unsystematic risk of the portfolio C. increase the return of the portfolio D. decrease the variation in returns the investor faces in any one year 4. A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 24% while stock B has a standard deviation of return of 18%. Stock A comprises 60% of the portfolio while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is .0380, the correlation coefficient between the returns on A and B is _________. A.
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This note was uploaded on 07/19/2011 for the course FIN 310 taught by Professor Palomino during the Spring '11 term at University of Michigan.

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FinalExam2011_Solution - Final Exam FIN 308 Capital Markets...

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