Practice_Final3_AK

Practice_Final3_AK - Final Exam FIN 308 Capital Markets and...

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Final Exam FIN 308 – Capital Markets and Investment Strategy Answer Key Name: __________________________________________ 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 5 multiple choice questions and the second part contains 4 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 100 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! 1
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Part I 1. Multiple Choice (15 Points) This problem includes five 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. A portfolio is composed of two stocks: Tiffany and Lockheed Martin. You hold 40% in Tiffany and 60% in Lockheed Martin. Tiffany has a standard deviation of 40 percent and Lockheed Martin has a standard deviation of 30 percent. The correlation coefficient between the two returns is 0.2. The standard deviation of the return of your portfolio is ________________. A) 6.95% B) 24.08% C) 26.37% D) 28.00% E) 34.00% 2. The risk-free interest rate is 2%. The expected market rate of return is 10%. If you expect Intel stock with a beta of 1.8 to offer a rate of return of 15%, then you should . .. A) Under-weigh Intel in your portfolio relative to its relative value in the market portfolio, because it is under-priced B) Under-weigh Intel in your portfolio relative to its relative value in the market portfolio, because it is over-priced C) Hold Intel according to its relative value in the market portfolio, because it is fairly priced D) Over-weigh Intel in your portfolio relative to its relative value in the market portfolio, because it is under-priced E) Over-weigh Intel in your portfolio relative to its relative value in the market portfolio, because it is over-priced 3. Suppose the CAPM model is correct. The risk-free interest rate is 1%. Which of the following portfolios of risky assets cannot lie on the efficient frontier? 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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Practice_Final3_AK - Final Exam FIN 308 Capital Markets and...

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