Question 1

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

Accepted Answer

A)  5.0%
B)  0.6%
C)  7.6%
D)  22.4%
E)  10.1% C

Question 2

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 3

The market or equity risk premium can be estimated by computing the historical average excess return of the market portfolio.

Accepted Answer

A) True 
 B)False  True

Question 4

The weight of Ball Corporation in your portfolio is:

Accepted Answer

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

Question 5

Companies that sell household products and food have very little relation to the state of the economy because such basic needs do not go away.These stocks tend to have ________ betas.

Accepted Answer

A)  high
B)  low
C)  negative
D)  zero
E)  very high

Question 6

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 7

You have invested $12,000 in RBC stock,$8,000 in TD stock,and $6,000 in WestJet stock.If you expect the return on RBC to be 5% in the next year,the return on TD to be 3%,and the return on WestJet to be 8%,what is the expected return for your portfolio?

Accepted Answer

A)  5.4%
B)  4.8%
C)  5.1%
D)  5.33%
E)  5.2%

Question 8

A stock market comprises 5000 shares of stock A and 2000 shares of stock B.Assume the share prices for stocks A and B are $20 and $35,respectively.If you have $15,000 to invest and you want to hold the market portfolio,how much of your money will you invest in Stock A?

Accepted Answer

A)  $10,000
B)  $8,823.53
C)  $6,176.47
D)  $5,000
E)  $4,403.42

Question 9

Suppose you buy 100 shares of RBC at $85 per share,and 80 shares of TD at $75 per share.If RBC's stock goes up to $88.50 per share and TD's stock goes up to $77 per share,what is your portfolio return?

Accepted Answer

A)  2%
B)  0%
C)  3.5%
D)  3%
E)  4.5%

Question 10

Assume that the ETF you invested in returns -10%.Then the realized return on your investment is closest to:

Accepted Answer

A)  -20%
B)  -10%
C)  -24%
D)  -26%
E)  -15%

Question 11

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

Accepted Answer

The answer of What role does the standard deviations of...

Question 12

The weight of Abbott Labs in your portfolio is:

Accepted Answer

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

Question 13

Stocks tend to move together if they are affected by:

Accepted Answer

A)  company-specific events.
B)  common economic events.
C)  events unrelated to the economy.
D)  idiosyncratic shocks.
E)  unforeseen events.

Question 14

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 15

Is it possible for a stock to have high total risk but low systematic risk?

Accepted Answer

The answer of Is it possible for a stock to...

Question 16

You have invested $25,000 in RBC stock and $18,000 in TD stock.If you expect the return on RBC to be 6% in the next year,and the return on TD to be 4%,what is the expected return for your portfolio?

Accepted Answer

A)  4%
B)  5%
C)  5.2%
D)  6%
E)  4.8%

Question 17

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 18

Your portfolio has 25% of its value invested in Bombardier and the remainder invested in Lululemon.Bombardier stock has a volatility of 30%,while Lululemon stock has a volatility of 18%.If the correlation between Bombardier and Lululemon is 0.2,what is the standard deviation of your portfolio?

Accepted Answer

A)  16.7%
B)  24%
C)  2.8%
D)  21%
E)  46.1%

Question 19

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 20

Since total risk is greater than systematic risk,should standard deviation be always greater than beta?

Accepted Answer

The answer of Since total risk is greater than systematic...

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 volatility of a portfolio that is equally invested in Wal-Mart and Duke Energy is closest to: