Exam 11: Introduction to Risk, Return, and the Opportunity Cost of Capital

Determine the nominal rate of interest, if the real rate is 6% and the inflation rate is 1.85%

An investor is considering purchasing two stocks for a portfolio.Stock A will comprise of 40% of the portfolio and Stock B 60%.It is expected that three economic states may occur, with a 40% probability of a boom economy, 50% probability of an average economy and a 10% probability of a bust economy.If a boom economy transpires, stock A will yield an 11% return and stock B 15%.An average economy will see a 7% and 11% returns for stocks A and B respectively.In a bust economy, stock A will have return of -20% and stock B -5%.Given the above information, calculate the portfolio expected return.

Real rates of return will be positive as long as:

Calculate the expected return, variance, and standard deviations for investments in either stock A or stock B, or an equally weighted portfolio of both. B.

Industries that generally perform well when other industries are performing well are referred to as:

When the annual rate of return on Canadian Treasury bills is historically high, investors expect the risk premium on the stock market to be:

Treasury bonds have provided a higher historical return than Treasury bills, which can be attributed to:

What is the variance of return of a three-stock portfolio (with unequal weights 25%, 50% and 25%) that produced returns of 20%, 25% and 30%, respectively?

Standard deviation can be calculated as the square of the variance.

Risk factors that are expected to affect only a specific firm are referred to as:

What nominal return was received by an investor when inflation averaged 8.0 percent and the real rate of return was a negative 2.5 percent?

Which of the following statements is correct for an investor starting with $1,000 in common stocks over a 20-year investment horizon in which stocks averaged 11 percent in nominal terms and 4 percent in real terms? The portfolio value is now approximately:

If a share of stock provided a 14.0 percent nominal rate of return over the previous year while the real rate of return was 6.0 percent, then the inflation rate was:

Calculate the expected return, variance, and standard deviation for the following portfolio of four stocks:

The historical record fails to show that investors have received a risk premium for holding risky assets.

What is the difference between unique risk, which can be diversified away, and market risk, which cannot?

A stock that is considered to be a positive risk asset is added to a portfolio.As a result, the portfolio will:

If one portfolio's variance exceeds that of another portfolio, its standard deviation will also be greater than that of the other portfolio.

You are considering two stocks for investment.Your analysis has determined that three potential economic states may occur.A matrix of economic probabilities and potential return of each stock has been provided to you.Given this information, calculate the correlation for the stock.

Although unique risk is present in differing amounts, individual stocks are: