FINA_4320_Class15

# FINA_4320_Class15 - Midterm 1(Practice with answers 1 An...

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Midterm 1 (Practice, with answers) 1. An investor with a degree of risk aversion A-5 will demand a risk premium of _____ on a portfolio with a standard deviation of 10%. A) 0.25% B) 0.50% C) 2.5% D) 5.0% Answer: C Difficulty: Hard 2. Suppose you pay \$9,700 for a Treasury bill maturing in three months. What is the holding period return for this investment? A) 3% B) 3.1% C) 12.4% D) 16.7% Answer: B Difficulty: Medium 3. Suppose you pay \$9,700 for a Treasury bill maturing in six months. What is the effective annual rate of return for this investment? A) 3.1% B) 6% C) 6.18% D) 6.28% Answer: D Difficulty: Medium

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4. Consider a treasury bill with a rate of return of 5% and the following risky securities: Security A: E(r) = .15; s 2 = .0400 Security B: E(r) = .10; s 2 = .0225 Security C: E(r) = .12; s 2 = .1000 Security D: E(r) = .13; s 2 = .0625 The investor must develop a complete portfolio by combining the risk-free asset with one of the securities mentioned above. The security the investor would choose as part of his complete portfolio would be __________. A) security A B) security B C) security C D) security D Answer: A Difficulty: Medium 5. The market portfolio has a standard deviation of 10%. __________ of your complete portfolio should be invested in the risk-free asset if you want your
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## This note was uploaded on 07/26/2011 for the course FIN 4133 taught by Professor Hearth during the Spring '11 term at Arkansas.

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FINA_4320_Class15 - Midterm 1(Practice with answers 1 An...

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