01 Jan If markets are efficient,

QUIZ 3

Question 1

A portfolio is invested 40.4% in Stock A, 16.7% in Stock B, and the remainder in Stock C. The expected returns are 16.5%, 24.5%, and 8.8% respectively. What is the portfolio’s expected returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 2

You have observed the following returns on ABC’s stocks over the last five years:

3%, 9%, -7.2%, 11.4%, -7.2%

What is the arithmetic average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 3

Suppose a stock had an initial price of $90.02 per share, paid a dividend of $8.5 per share during the year, and had an ending share price of $107.66. What are the percentage returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 4

Suppose the returns for Stock A for last six years was 4%, 7%, 8%, -2%, 9%, and 7%.

Compute the standard deviation of the returns.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 5

Suppose a stock had an initial price of $81.46 per share, paid a dividend of $5.2 per share during the year, and had an ending share price of $87.55. What are the dollar returns?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 6

Based on the following information, calculate the expected returns:

Prob Return

Recession 30% 47.4%

Boom 70% 12.7%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 7

Suppose a stock had an initial price of $67.75 per share, paid a dividend of $4.8 per share during the year, and had an ending share price of $109.16. If you own 51 shares, what are the dollar returns?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 8

Suppose a stock had an initial price of $97.22 per share, paid a dividend of $8.4 per share during the year, and had an ending share price of $86.42. What are the percentage returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 9 You own a portfolio invested 27.03% in Stock A, 16.48% in Stock B, 14.48% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.76, 1.08, 0.66, and 1.1. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 10

Calculate the expected returns of your portfolio

Stock Invest Exp Ret

A

$409

6.6%

B $668 14%

C $1,810 29.1%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 11

Suppose a stock had an initial price of $95.11 per share, paid a dividend of $4.9 per share during the year, and had an ending share price of $103.9. What are the percentage returns if you own 25 shares?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 12

You own a portfolio invested 12.35% in Stock A, 12.21% in Stock B, 12.87% in Stock C, and the remainder in Stock D. The beta of these four stocks are 1.49, 0.74, 0.58, and 1.45. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 13

Calculate the expected returns of your portfolio

Stock Invest Exp Ret

A

$203

3.5%

B $670 18.2%

C $464 23.5%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 14

Suppose the real rate is 7.99% and the inflation rate is 7.88%. Solve for the nominal rate. Use the Fisher Effect formula.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 15

You own a portfolio of two stocks, A and B. Stock A is valued at $6,540 and has an expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is the expected return on the portfolio if the portfolio value is $9,500?

Answers:

9.58 percent

9.62 percent

9.74 percent

9.97 percent

10.23 percent

Question 16

What is the beta of the following portfolio?

Picture

Answers:

1.08

1.14

1.17

1.21

1.23

Question 17

The stock of Billingsley United has a beta of 0.92. The market risk premium is 8.4 percent and the risk-free rate is 3.2 percent. What is the expected return on this stock?

Answers:

8.87 percent

9.69 percent

10.93 percent

11.52 percent

12.01 percent

Question 18

Portfolio diversification eliminates which one of the following?

Choose only one option.

Answers:

Market risk

Reward for bearing risk

Unsystematic risk

Total investment risk

Portfolio risk premium

Question 19

The systematic risk is same as:

Answers:

Unique risk

Diversifiable risk

Asset-specific risk

Market risk

Unsystematic risk

Question 20

What is the beta of the following portfolio?

Picture

Answers:

0.98

1.02

1.11

1.14

1.20

Question 21

You own a portfolio that has $1,900 invested in Stock A and $2,700 invested in Stock B. If the expected returns on these stocks are 9 percent and 15 percent, respectively, what is the expected return on the portfolio?

Answers:

10.57 percent

11.14 percent

11.96 percent

12.52 percent

13.07 percent

Question 22

A $36,000 portfolio is invested in a risk-free security and two stocks. The beta of stock A is 1.29 while the beta of stock B is 0.90. One-half of the portfolio is invested in the risk-free security. How much is invested in stock A if the beta of the portfolio is 0.58?

Answers:

$6,000

$9,000

$12,000

$15,000

$18,000

Question 23

Standard deviation measures _____ risk while beta measures _____ risk.

Answers:

systematic; unsystematic

unsystematic; systematic

total; unsystematic

total; systematic

asset-specific; market

Question 24

Semi-strong-form efficient markets are not weak-form efficient.

Answers:

True

False

Question 25

If markets are efficient, the difference between the instrinsic value and the market value of the comapny’s security is:

Answers:

negative

zero

positive