Sample Quiz #3

# Sample Quiz #3 - Finance 355: Investments Sample Quiz 3 1....

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1 Finance 355: Investments Sample Quiz 3 1. There is a 20 percent probability that a particular stock will earn an 18 percent return and an 80 percent probability that it will earn 13 percent. What is the risk premium on this stock if the risk-free rate is 3.5 percent? a. 8.00 percent b. 10.50 percent c. 13.00 percent d. 16.00 percent e. 17.50 percent 2. Fruity Soft Drinks just announced that their quarterly earnings will be \$0.20 less than the prior quarter. This announcement will cause their stock price to: a. increase. b. either increase or remain constant. c. remain constant. d. decrease. e. increase, decrease, or remain constant. 3. You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B. What is the expected rate of return on this portfolio? State of Probability of State Rate of Return if State Occurs Economy of Economy Stock A Stock B Boom 0.30 20% 14% Normal 0.70 12% 8% a. 10.38 percent b. 10.88 percent c. 12.56 percent d. 12.91 percent e. 13.05 percent 4. A security which plots _____ the security market line represents the best investment opportunity, all else equal. a. above b. on or above c. on d. on or below e. below

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2 5. The reward-to-risk ratio is 7.7 percent and the risk-free rate is 4.2 percent. What is the expected return on a risky asset if the beta of that asset is 0.89? a.
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## This note was uploaded on 11/18/2011 for the course FIN 355 taught by Professor Phsiao during the Fall '08 term at S.F. State.

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Sample Quiz #3 - Finance 355: Investments Sample Quiz 3 1....

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