Homework 2

# Homework 2 - Homework 2 FINA 469 Spring 2012 Due Thursday...

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Due: Thursday, March 1, 2012 Instruction: The home work is composed of Section I and Section II. Please write down your answers in a separate sheet. When you submit your homework, please submit the sheet only. Section I: Multiple Choices 1. Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What is the reward-to-variability ratio? a. .40 b. .50 c. .75 d. .80 2. The risk that can be diversified away is ___________. a. Beta b. Firm specific risk c. Market risk d. Systematic risk 3. The term "complete portfolio" refers to a portfolio consisting of __________________. a. The risk-free asset combined with at least one risky asset b. The market portfolio combined with the minimum variance portfolio c. Securities from domestic markets combined with securities from foreign markets d. Common stocks combined with bonds 4. You put up \$50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of \$3.50. Your HPR was a. 4.00% b. 3.50% c. 7.50% d. 11.00% 5. Suppose you pay \$9,800 for a \$10,000 par Treasury bill maturing in two months. What is the annual percentage rate of return for this investment? a. 2.04% b. 12.15% c. 12.24% d. 12.00% 6. Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return and a 30% chance of losing 6%. What is your expected return on this investment? a. 12.8%

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Homework 2 - Homework 2 FINA 469 Spring 2012 Due Thursday...

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