Exam2_verB - 1 Version B FINA 363 Spring 2011 Exam 2 1....

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1 Version B 1. Choose the version of this exam. The version of the exam is found at the top of this page. (a) Version A (b) Version B (c) Version C (d) Version D (e) Version E 2. You own a portfolio that has $1 ; 600 invested in Stock A and $400 invested in stock B. If the expected returns on these stocks are 20% and 15% , respectively, what is the expected return on the portfolio? (a) 16 : 0% (b) 17 : 0% (c) 17 : 5% (d) 18 : 0% (e) 19 : 0% 3. As shown in the table below, the return on a stock depends on the state of future economy: State of the Economy Probability Return Outcome (~ r ) Boom 0 : 2 0 : 55 Normal 0 : 6 0 : 40 Recession 0 : 2 0 : 25 As we did in class, variance of the stock return can be computed as V ar (~ r ) = E ~ r 2 ± r 2 , where r is the expected rate of return. Compute the E ~ r 2 ± part. (You do NOT need to solve for the variance.) (a) 0 : 169 (b) 0 : 176 (c) 0 : 216 (d) 0 : 400 (e) 0 : 525
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2 4. Currently, the one year spot rate is 0 : 5% per year and the two year spot rate is 1% per year. What is the expected one year spot rate starting one year from today under the Pure Expectations Theory? (a) Almost 0% (b) About 0 : 5% (c) About 1 : 5% (d) About 2 : 0% (e) About 2 : 5% 5. You bought a stock for $80 . Today you received $6 in dividends and then sold the stock for $88 . In this transaction, the capital gains yield on this stock is and the dividend yield is . (a) 7 : 5% ; 10% (b) 10% ; 7 : 5% (c) 10% ; 17 : 5% (d) 17 : 5% ; 10% (e) 17 : 5% ; 7 : 5% 6. A stock has a beta of 1 : 5 , the expected return on the market is 11% , and the risk-free rate is 3% . What must the expected return on this stock be according to the CAPM theory? (a) 46 : 5% (b) 36 : 0% (c) 21 : 0% (d) 19 : 5% (e) 15 : 0% 7. Let AB and Cov AB denote the correlation and covariance between stock A and stock B , respectively. Stock A and Stock B have standard deviations of ± A and ± B ; respectively. Which one of the following equations is incorrect ? (a) Cov AB 2 A = AB B A : (b) AB = Cov AB A B : (c) ± AB Cov AB = ± A ± B : (d) Cov AB = AB ± A ± B : (e) None of them are incorrect. (All of them are correct.)
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3 8. You have $10 ; 000 to invest in a stock portfolio. Your choices are Stock X with an expected
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Exam2_verB - 1 Version B FINA 363 Spring 2011 Exam 2 1....

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