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: haroon945@hotmail.com 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 __________. A) 10% B) 20% C) 40% D) 60% 4. According to the capital asset pricing model, __________. A) all securities must lie on the capital market line B) all securities must lie on the security market line C) underpriced securities lie below the security market line D) overpriced securities lie above the security market line
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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%? A) .5 B) .7 C) 1.2 D) 1.4 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 8. A security's beta coefficient will be negative if _____________. A) its returns are negatively correlated with market index returns B) its returns are positively correlated with market index returns C) its stock price has historically been very stable D) market demand for the firm's shares is very low
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9. The beta of a security is. .. A) The covariance between the security and the market returns divided by the variance of the market’s returns. B)
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This note was uploaded on 09/01/2011 for the course COMM 298 taught by Professor Freedman during the Spring '09 term at The University of British Columbia.

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

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