Exam 4: Risk and Return

You are considering investing in a share of ASX Ltd and you know that the share returns tend to be normally distributed, and you have calculated the expected return on the share to be 10% and the standard deviation to be around 15%. Based on those statistics, within what range would you expect the return on this share to fall during next year (calculate the range at 99% level of confidence).

If returns are normally distributed, the expected return plus or minus one standard deviation will cover what percentage of all possible returns?

Domino's shares have an expected return of 9 per cent and a variance of 0.25 per cent. What is the coefficient of variation for Domino's?

Given only information on beta, which of the following stocks is considered the least risky:

Share A has an expected return of 8% and a risk level of 10%. Share B has an expected return of 8% and a risk level of 14%. Which would you choose?

Correlation is a measure of:

Risk is less effectively reduced through diversifying into different investments when the different investments:

Which of the following is false?

Using the CAPM, calculate the expected rate of return for a share that has a beta of 2.3. The expected return on the market and risk-free rate are 6% and 5% respectively.

When choosing between two investments that have the same level of risk, investors prefer the investment with the ____________ return.

Share A has an expected return of 12% and risk level of 10%. Share B has an expected return of 12% and risk level of 14%. Share C has an expected return of 10% and risk level of 14%. Rank them in order of your preference.

A share is priced to return 10% but according to the CAPM its expected return is 7%. According to CAPM theory, we can expect the price of this share to:

What does a beta of greater than one mean if you hold a bond?

Beef Stock returns have exhibited a standard deviation of 0.57, whereas Sheep Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042. What is the covariance of the returns?

There are two probabilities of returns for Stock A. If the probability of a 10% return is 60%, what is the probability of a 12% return?

Given that a stock has generated returns of 6%, 18%, -5% and 20% over the last four years, the variance of stock returns was:

Suppose a particular stock's return is perfectly characterised by the normal distribution. This stock has a mean return of 10% and standard deviation of 3%. Within what range will approximately 95% of all possible returns on this stock lie:

The sum of the probabilities of returns must be:

If the expected returns on an investment are uncorrelated with the market, its beta value is:

A treasury bond has a systematic risk of: