Exam 10: Capital Markets and the Pricing of Risk

Use the table for the question(s) below. Consider the following realized annual returns: -Suppose that you want to use the 10 year historical average return on Microsoft to forecast the expected future return on Microsoft.Calculate the 95% confidence interval for your estimate of the expect return.

Which of the following statements is false?

Which of the following statements is false?

The cost of capital is related to the

Which of the following is NOT a diversifiable risk?

What is the difference between common risk and independent risk?

Use the table for the question(s) below. Consider the following average annual returns: -What is the excess return for the S&P 500?

Use the table for the question(s) below. Consider the following average annual returns: -What is the excess return for Corporate Bonds?

Use the information for the question(s) below. Suppose that in the coming year, you expect Exxon-Mobil stock to have a volatility of 42% and a beta of 0.9, and Merck's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the market's expected return is 12%. -Which stock has the highest systematic risk?

Use the table for the question(s) below. Consider the following Price and Dividend data for General Motors: -Assume that you purchased General Motors stock at the closing price on December 31,2004 and sold it at the closing price on December 30,2005.Calculate your realized annual return is for the year 2005.

Use the information for the question(s) below. Suppose the market portfolio's excess return tends to increase by 30% when the economy is strong and decline by 20% when the economy is weak. A type S firm has excess returns increase by 45% when the economy is strong and decrease by 30% when the economy is weak. A type I firm will also have excess returns of either 45% or -30%, but the type I firm's excess returns will depend only upon firm-specific events and will be completely independent of the state of the economy. -What is the beta for a type I firm?

Use the information for the question(s) below. Suppose the market portfolio's excess return tends to increase by 30% when the economy is strong and decline by 20% when the economy is weak. A type S firm has excess returns increase by 45% when the economy is strong and decrease by 30% when the economy is weak. A type I firm will also have excess returns of either 45% or -30%, but the type I firm's excess returns will depend only upon firm-specific events and will be completely independent of the state of the economy. -What is the beta for a type S firm?

Use the information for the question(s) below. Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return. -What is the expected return for an individual firm?

Which of the following investment opportunities provides lowest variation in average annual return?

Use the table for the question(s) below. Consider the following Price and Dividend data for Ford Motor Company: -Assume that you purchased Ford Motor Company stock at the closing price on December 31,2004 and sold it after the dividend had been paid at the closing price on January 26,2005.Your total return rate (yield)for this period is closest to:

The key step to measuring systematic risk is finding a portfolio that contains ONLY ________ risk.

Which of the following statements is false?

The standard deviation for the return on an portfolio of 20 type I firms is closest to: