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week08_TutorialQuestions - SCHOOL OF BANKING AND FINANCE...

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FINS 1613 Tutorial Questions 1 SCHOOL OF BANKING AND FINANCE FINS1613 BUSINESS FINANCE Semester 2, 2010 TUTORIAL QUESTIONS WEEK 8 – Risk & Return Multiple-choice Questions 1. Which of these is the ‘risk premium’? a. The return required by an investor on a risky security over and above the dividend rate of return b. The return required by an investor on a risky security over and above the market rate of return c. The return required by an investor on a risky security over and above the risk-free rate of return d. The return required by an investor on a risky security over and above the rate of return on equity 2. What is the expected portfolio return given the following information? Asset Portfolio weight E(ri) A 0.1 15% B 0.3 17% C 0.4 25% D 0.2 20% 3. An analyst has estimated how a particular stock’s return will vary. Economy Probability Return Recession 0.1 -23% Below average 0.1 - 8% Average 0.4 6% Above average 0.2 17% Boom 0.2 24%
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FINS 1613 Tutorial Questions 2 What is the coefficient of variation of the company’s stock? (Use the population standard deviation, not the sample standard deviation when calculating the coefficient of variation.)
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