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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 closedbook exam. You can only use one twosided lettersized 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 multiplechoice 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 riskfree 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 riskfree asset
B.
invest $375,000 in the riskfree 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.
 Spring '11
 Palomino

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