Question 1

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 19 percent. The average return and standard deviation of Idol Staff are 12 percent and 22 percent; and of Poker-R-Us are 11 percent and 25 percent.

Accepted Answer

A)  Idol Staff, Rail Haul, Poker-R-Us 
B)  Rail Haul, Idol Staff, Poker-R-Us 
C)  Idol Staff, Poker-R-Us, Rail Haul 
D)  Poker-R-Us, Rail Haul, Idol Staff

Question 2

The total risk of the S&P 500 Index is equal to

Accepted Answer

A)  diversifiable risk. 
B)  nondiversifiable risk. 
C)  modern portfolio risk. 
D)  efficient frontier risk.

Question 3

Year-to-date, Company Y had earned a 10.8 percent return. During the same time period, Company R earned 12.20 percent and Company C earned −1.56 percent. If you have a portfolio made up of 45 percent Y, 35 percent R, and 20 percent C, what is your portfolio return?

Accepted Answer

A)  7.15 percent 
B)  8.19 percent 
C)  8.82 percent 
D)  9.44 percent

Question 4

You have $45,050 to invest. You want to purchase shares of Company A at $10.25, Company B at $15.10, and Company F at $9.05. How many shares of each company should you purchase so that your portfolio consists of 30 percent Company A, 50 percent Company B, and 20 percent Company F? Report only whole stock shares.

Accepted Answer

A)  Company A = 30 shares, Company B = 50 shares, Company F = 20 shares 
B)  Company A = 44 shares, Company B = 30 shares, Company F = 50 shares 
C)  Company A = 308 shares, Company B = 755 shares, Company F = 181 shares 
D)  Company A = 1,318 shares, Company B = 1,491 shares, Company F = 995 shares

Question 5

The mean return computed by finding the equivalent return that is compounded for N periods is ________.

Accepted Answer

A)  dollar return 
B)  geometric returns 
C)  average return 
D)  percentage return

Question 6

Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 14 percent and standard deviation of 30 percent. The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.

Accepted Answer

A)  Fruit Fly, Night Ryder, WholeMart 
B)  Night Ryder, WholeMart, Fruit Fly 
C)  WholeMart, Fruit Fly, Night Ryder 
D)  WholeMart, Night Ryder, Fruit Fly

Question 7

At the beginning of the month, you owned $8,000 of Company G, $8,000 of Company S, and $3,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.80 percent, 1.50 percent, and −0.75 percent. What is your portfolio return?

Accepted Answer

A)  2.85 percent 
B)  3.80 percent 
C)  4.03 percent 
D)  8.55 percent

Question 8

If you own 600 shares of Alaska Corporation at $23.25, 450 shares of Best Company at $34.50, and 150 shares of Motor Company at $6.95, what are the portfolio weights of each stock?

Accepted Answer

A)  Alaska = 0.6000, Best = 0.4500, Motor = 0.1500 
B)  Alaska = 0.3594, Best = 0.5332, Motor = 0.1074 
C)  Alaska = 0.4571, Best = 0.5087, Motor = 0.0342 
D)  Alaska = 0.2325, Best = 0.3450, Motor = 0.0695

Question 9

Which of the following is the correct ranking from least risky to most risky?

Accepted Answer

A)  Long-term Treasury bonds, stocks, Treasury bills 
B)  Treasury bills, long-term Treasury bonds, stocks 
C)  stocks, long-term Treasury bond, Treasury bills 
D)  stocks, Treasury bills, long-term Treasury bonds

Question 10

Which of the following is correct?

Accepted Answer

A)  Over a long time frame, stocks have performed better than long-term Treasury bonds. 
B)  Average stock returns are not an indication of what an investor may earn in any one year. 
C)  In some years, long-term Treasury bonds performed better than stocks. 
D)  All of these choices are correct.

Question 11

FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return?

Accepted Answer

A)  $3,990, 11.73 percent 
B)  $4,110, 12.08 percent 
C)  $4,250, 12.29 percent 
D)  $2,009, 9.13 percent

Question 12

If you own 400 shares of Xerox at $15.00, 500 shares of Qwest at $10.00, and 350 shares of Liz Claiborne at $45.00, what are the portfolio weights of each stock?

Accepted Answer

A)  weight of Xerox: 22.43 percent, weight of Qwest: 11.09 percent, weight of Liz Claiborne: 58.88 percent 
B)  weight of Xerox: 34.67 percent, weight of Qwest: 16.69 percent, weight of Liz Claiborne: 48.64 percent 
C)  weight of Xerox: 22.43 percent, weight of Qwest: 18.69 percent, weight of Liz Claiborne: 58.88 percent 
D)  weight of Xerox: 36.98 percent, weight of Qwest: 61.07 percent, weight of Liz Claiborne: 1.95 percent

Question 13

Which of the following statements is correct?

Accepted Answer

A)  For a few firms in completely different industries, it is possible to have a correlation that approaches −2.0. 
B)  A correlation of −1.0 means that the two firms are uncorrelated or that they have no relationship. 
C)  Most common stocks have low correlation with each other since they operate in different industries. 
D)  None of these choices are correct.

Question 14

Which of the following is correct?

Accepted Answer

A)  Total risk is measured by the standard deviation. 
B)  There is a positive relationship between risk and return. 
C)  If you observe a high variability in a stock's returns you can infer that the stock is very risky. 
D)  All of these choices are correct.

Question 15

Which of the following statements is correct with regards to diversification?

Accepted Answer

A)  Diversifying reduces the return of the portfolio. 
B)  Diversifying reduces the market risk of the portfolio. 
C)  Diversifying reduces the dollar return of the portfolio. 
D)  None of these choices are correct.

Question 16

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?

Accepted Answer

A)  firm specific risk 
B)  market risk 
C)  modern portfolio risk 
D)  total risk

Question 17

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

Accepted Answer

A)  Rail Haul, Idol Staff, Poker-R-Us 
B)  Idol Staff, Rail Haul, Poker-R-Us 
C)  Poker-R-Us, Idol Staff, Rail Haul 
D)  Idol Staff, Poker-R-Us, Rail Haul

Question 18

The past five monthly returns for PG&E are 12.14 percent, −11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

Accepted Answer

A)  2.92 percent 
B)  1.21 percent 
C)  −3.46 percent 
D)  3.17 percent

Question 19

Which of these is a measure of risk to reward earned by an investment over a specific period of time?

Accepted Answer

A)  coefficient of variation 
B)  market deviation 
C)  standard deviation 
D)  total variation

Question 20

Rank the following three stocks by their risk-return relationship, best to worst. Night Ryder has an average return of 33 percent and standard deviation of 40 percent. The average return and standard deviation of WholeMart are 10 percent and 20 percent; and of Fruit Fly are 19 percent and 33 percent.

Accepted Answer

A)  Night Ryder, WholeMart, Fruit Fly 
B)  WholeMart, Fruit Fly, Night Ryder 
C)  Night Ryder, Fruit Fly, WholeMart 
D)  Fruit Fly, Whole Mart, Night Ryder

Exam 9: Characterizing Risk and Return

The total risk of the S&P 500 Index is equal to

Year-to-date, Company Y had earned a 10.8 percent return. During the same time period, Company R earned 12.20 percent and Company C earned −1.56 percent. If you have a portfolio made up of 45 percent Y, 35 percent R, and 20 percent C, what is your portfolio return?

The mean return computed by finding the equivalent return that is compounded for N periods is ________.

Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 14 percent and standard deviation of 30 percent. The average return and standard deviation of WholeMart are 12 percent and 25 percent; and of Fruit Fly are 25 percent and 40 percent.

At the beginning of the month, you owned $8,000 of Company G, $8,000 of Company S, and $3,000 of Company N. The monthly returns for Company G, Company S, and Company N were 7.80 percent, 1.50 percent, and −0.75 percent. What is your portfolio return?

If you own 600 shares of Alaska Corporation at $23.25, 450 shares of Best Company at $34.50, and 150 shares of Motor Company at $6.95, what are the portfolio weights of each stock?

Which of the following is the correct ranking from least risky to most risky?

Which of the following is correct?

FedEx Corp. stock ended the previous year at $113.39 per share. It paid a $0.40 per share dividend last year. It ended last year at $126.69. If you owned 300 shares of FedEx, what was your dollar return and percent return?

If you own 400 shares of Xerox at $15.00, 500 shares of Qwest at $10.00, and 350 shares of Liz Claiborne at $45.00, what are the portfolio weights of each stock?

Which of the following statements is correct?

Which of the following is correct?

Which of the following statements is correct with regards to diversification?

Which of the following is defined as the portion of total risk that is attributable to firm or industry factors and can be reduced through diversification?

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

The past five monthly returns for PG&E are 12.14 percent, −11.37 percent, 3.77 percent, 6.47 percent, and 3.58 percent. What is the average monthly return?

Which of these is a measure of risk to reward earned by an investment over a specific period of time?