Question 1

Suppose you have $10,000 in cash to invest.You decide to sell short $5000 worth of Kinston stock and invest the proceeds from your short sale plus your $10,000 into one-year Treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns: 
The return on your portfolio is closest to:

Accepted Answer

A)   -0.5%
B)   13.5%
C)   -2.5%
D)   14.5%
E)   5.0% C

Question 2

Use the table for the question(s) below.
Consider the following expected returns, volatilities, and correlations:
 
-The expected return of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

Accepted Answer

A)   15%
B)   14%
C)   29%
D)   44%
E)   22% C

Question 3

The Capital Asset Pricing Model asserts that the ________ return is equal to the risk-free rate plus a risk premium for systematic risk.

Accepted Answer

A)   realized return
B)   expected return
C)   holding period return
D)   ex-post return
E)   average return B

Question 4

Suppose you buy 50 shares of RBC at $90 per share,and 70 shares of TD at $78 per share.If RBC's stock goes up to $94 per share and TD's stock falls to $72 per share,what is your portfolio return?

Accepted Answer

A)   -2.2%
B)   0%
C)   6.4%
D)   4.4%
E)   -7.7%

Question 5

Use the information for the question(s) below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share, 200 shares of Lowes (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share.
-The weight of Abbott Labs in your portfolio is:

Accepted Answer

A)   50%
B)   40%
C)   30%
D)   20%
E)   10%

Question 6

RBC stock has a beta of 0.85,while TD stock has a beta of 1.21.The risk-free rate is 1.5%,and the expected return on a portfolio with 50% weight in RBC and the remainder in TD is 9.74%.What is the market risk premium?

Accepted Answer

A)   7%
B)   9.5%
C)   8%
D)   8.2%
E)   7.2%

Question 7

Barrick Gold Corp stock has a beta of 2.1.If the risk-free rate is 2.6%,and expected market return is 9%,what is the expected return of Barrick Gold Corp stock,according to the CAPM?

Accepted Answer

A)   10.8%
B)   10.4%
C)   21.5%
D)   13.4%
E)   16%

Question 8

A portfolio has three stocks - 300 shares of Yahoo (YHOO),300 Shares of General Motors (GM),and 100 shares of Standard and Poor's Index Fund (SPY).If the price of YHOO is $20,the price of GM is $30,and the price of SPY is $150,calculate the portfolio weight of YHOO and GM.

Accepted Answer

A)   10%, 20%
B)   15%, 25%
C)   20%, 30%
D)   20%, 40%
E)   43%, 43%

Question 9

A stock market comprises 2000 shares of stock A and 2000 shares of stock B.The share prices for stocks A and B are $20 and $10,respectively.What proportion of the market portfolio is comprised of each stock?

Accepted Answer

A)   Stock A is 66.7% and Stock B is 33.3%
B)   Stock A is 33.3% and Stock B is 66.7%
C)   Stock A is $40,000 and Stock B is $20,000
D)   Stock A is 200% and Stock B is 100%
E)   Stock A is 50% and Stock B is 50%

Question 10

If you build a large enough portfolio,you can diversify away all ________ risk,but you will be left with ________ risk.

Accepted Answer

A)   diversifiable, unsystematic
B)   unsystematic, systematic
C)   systematic, undiversifiable
D)   diversifiable, diversifiable
E)   common, unsystematic

Question 11

When the returns of two stocks are negatively correlated,but not perfectly negatively correlated,then

Accepted Answer

A)   they always move oppositely.
B)   they tend to move oppositely.
C)   they have no tendency.
D)   they tend to move together.
E)   they always move together.

Question 12

CIBC stock has a beta of 1.2.If the risk-free rate is 1.8%,and the market risk premium is 6.5%,what is the expected return of CIBC stock,according to the CAPM?

Accepted Answer

A)   7.44%
B)   8.3%
C)   9.6%
D)   7.8%
E)   10%

Question 13

For each 1% change in the market portfolio's excess return,the investment's excess return is expected to change by ________ percent due to risks that it has in common with the market.

Accepted Answer

A)   beta
B)   alpha
C)   zero
D)   more than 1
E)   less than 1

Question 14

Use the information for the question(s) below.
Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 6% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange-traded fund (ETF) with a 12% expected return and a 20% volatility.
-The expected return on your of your investment is closest to:

Accepted Answer

A)   18%
B)   20%
C)   12%
D)   24%
E)   32%

Question 15

If you build a large enough portfolio,you can diversify away all the risks of a portfolio.

Accepted Answer

A) True 
 B)False

Question 16

What role does the correlation of two assets play in computation of the expected return of the two asset portfolio?

Accepted Answer

The answer of What role does the correlation of two...

Question 17

Stocks that have a higher volatility will always have a higher beta.

Accepted Answer

A) True 
 B)False

Question 18

Your portfolio has 50% of its value invested in Bombardier and the remainder invested in Lululemon.Bombardier stock has a volatility of 25%,while Lululemon stock has a volatility of 10%.If the correlation between Bombardier and Lululemon is -0.1,what is the standard deviation of your portfolio?

Accepted Answer

A)   16.7%
B)   17.5%
C)   13%
D)   17.4%
E)   1.7%

Question 19

Your portfolio contains $20,000 of Air Canada stock,which has a beta of 1.4,and $30,000 of WestJet stock,which has a beta of 1.8.What is the beta of your portfolio?

Accepted Answer

A)   1.64
B)   1.60
C)   1.40
D)   1.72
E)   1.69

Question 20

Blackberry stock has a beta of 1.7.If the risk-free rate is 2.1%,and the market risk premium is 7%,what is the expected return of Blackberry stock,according to the CAPM?

Accepted Answer

A)   9.8%
B)   10.4%
C)   11.9%
D)   14%
E)   10%

Exam 11: Systematic Risk and the Equity Risk Premium

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -The expected return of a portfolio that is equally invested in Duke Energy and Microsoft is closest to: