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CMP - Commerce 298 Practice Final

# CMP - Commerce 298 Practice Final - Commerce Mentor Program...

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Commerce Mentor Program Commerce 298 Practice Final Exam Prepared By: Haroon Chaudhry Feel free to contact me if you have any questions: Final Review session will be on April 25 th 3-5 pm HA 321

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Part I: Multiple Choice 1. The variance of a portfolio of risky securities is ... A) the sum of the securities’ covariances B) the sum of the securities’ variances C) the weighted sum of the securities’ covariances D) the weighted sum of the securities’ variances 2. Asset A has an expected return of 15% and a reward-to-variability ratio of .4. Asset B has an expected return of 20% and a reward-to-variability ratio of .3. A risk-averse investor would prefer a portfolio using the risk-free asset and _______. A) asset A B) asset B C) no risky asset D) can't tell from the data given 3. Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return 10% and a standard deviation of return of 30%. The weight of security B in the global minimum variance is __________. 4. According to the capital asset pricing model, __________.
5. Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 12%? 7. The risk-free rate is 4%. The expected market rate of return is 11%. If you expect stock X with a beta of .8 to offer a rate of return of 12 percent, then you should ____. A) buy stock X because it is overpriced B) buy stock X because it is underpriced C) sell short stock X because it is overpriced D) sell short stock X because it is underpriced

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CMP - Commerce 298 Practice Final - Commerce Mentor Program...

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