Winter 2011 Midterm solutions.S11

Winter 2011 Midterm solutions.S11 - Name Student Number Day...

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Name: _________________________________ Student Number: ____________________ Day of your lecture (Monday, Tuesday, or Thursday): _________________________________ AP/ADMS 3531, Winter 2011 Professors Domian and Pestano Midterm Exam This exam consists of 30 multiple choice questions. Show your responses on the Scantron sheet. The first 15 questions are attached. The remaining questions will be handed out later in the exam period. If there is no disruption during the exam period, you can keep working on the first 15 questions after the second module (questions 16 to 30) is handed out. If there is a disruption, each module will be deemed completed after 40 minutes. You are allowed to have one page of notes (8½ by 11 inches, one sheet of paper written on the front side only, 10 point minimum font size or equivalent if handwritten) which must be turned in with your exam. You can also use a handheld calculator. 1. The value that is equal to the ending price of a security minus the beginning price is called the a. arithmetic average return. b. geometric average return. c. capital gain or loss. d. percentage return. e. risk premium. Ch 1: p. 3 2. A portfolio’s __________ is a simple weighted combination of the __________ of the assets in the portfolio. a. expected return; expected return b. variance; variance c. standard deviation; standard deviation d. covariance; covariance e. correlation; correlation Ch 2: Portfolio expected returns
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3. A portfolio had a value of $100,000 ten years ago. The annual arithmetic average return was 8.6 percent during the past ten years, and the portfolio had a negative return in two of the ten years. The ending value of the portfolio a. cannot be zero. b. could be $125,000. c. must be $186,000. d. must be $228,191. e. could be $250,000. Ch 2: We need to know the geometric average (see pages 20-22) to determine the ending value, and it must be less than the arithmetic average because not all of the annual returns are the same. So the ending value must be less than $100,000 x 1.086 10 = $228,191. A return of -100% in any one year would result in a zero ending value. 4. Which of the following is true about broker-customer relations? a. Advice received from your broker is guaranteed to be accurate. b. Most brokerage agreements require disputes to be settled in a court of law. c. Arbitrage is the legal process of settling a case without a jury. d. Churning an account is usually beneficial for the customer. e. Commission brokers have a potential conflict of interest with their clients. Ch 3: pp 73-74 The next two questions are based on the following situation. Joe Investor bought 400 shares of Bank Corp at the beginning of the year, when its stock price was $35 per share. The margin requirement was 30%, and Joe decided to deposit a 40% margin. The brokerage firm charges 1 percentage point above the prime rate for margin loans; the prime rate was 5%. Bank Corp paid a cash dividend of $1 per share at the end of the year. Joe sold his stock for $40 per share just after
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This note was uploaded on 08/15/2011 for the course ADMS 3531 taught by Professor Profp during the Summer '10 term at York University.

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Winter 2011 Midterm solutions.S11 - Name Student Number Day...

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