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1) Stock Q will return 18
percent in a boom and 9 percent in a normal economy. Stock R will return 9
percent in a boom and 5 percent in a normal economy. There is a 75 percent
probability the economy will be normal. What is the standard deviation of a
portfolio that is invested 40 percent in Stock Q and 60 percent in stock R?
A) 0.78%
B) 2.60%
C) 5.42%
D) 7.80%
E) 17.80%
2) You want your portfolio
beta to be 1.3. Currently, the portfolio consists of $100 invested in stock A
with a beta of 1.5 and $300 in stock B with a beta of .8. You have another $400
to invest and want to divide it between an asset with a beta of 1.7 and a
risk-free asset. How much should you invest in the risk-free asset?
A) $17.65
B) $50.25
C) $200.15
D) $382.35
E) $400
3) A $4,000 portfolio is
invested in stocks A and B plus a risk-free asset. $2,100 is invested in stock
A. Stock A has a beta of 1.32 and stock B has a beta of .95. How much needs to
be invested in stock B if the goal is to create a portfolio that will mimic the
entire market?
A) $0
B) $1,266.67
C) $1,482.08
D) $1,292.63
E) $1,200
4) The systematic risk of the
market is assigned a:
A) Beta of 1
B) Beta of 0
C) Standard deviation of 1
D) Standard deviation of 0
E) Variance of 1
5) You plotted the monthly
rate of return for two securities against time for the past 48 months. If the
pattern of the movements of these two sets of returns rose and fell
together for the majority, but not all
of the time, then the securities have:
A) No correlation at all
B) A weak negative
correlation
C) A strong negative
correlation
D) A strong positive
correlation
E) A perfect positive
correlation
6) The primary purpose of
portfolio diversification is to:
A) Increase returns and risks
B) Eliminate all risks
C) Eliminate asset-specific
risks
D) Lower both returns and
risks
E) Eliminate systematic risks
7) When computing the
expected return on a portfolio of stocks the portfolio weights are based on
the:
A) Number of shares owned in
each stock
B) Price per share of each
stock
C) Market value of the total
shares held in each stock
D) Original amount invested
in each stock
E) Cost per share of each
stock held
8) Which one of the following
is an example of a nondiversifiable risk?
A) A poorly managed firm
suddenly goes out of business due to lack of sales
B) A well managed firm
reduces its work force and automates several jobs
C) A key employee of a firm
suddenly resigns and accepts employment with a key competitor
D) A well respected chairman
of the Federal Reserve suddenly resigns
E) A well respected president
of a firm suddenly resigns
9) The expected return on a
portfolio:
A) Can be greater than the
expected return on the best performing security in the portfolio
B) Can be less than the
expected return on the worst performing security in the portfolio
C) Is independent of the
performance of the overall economy
D) Is limited by the returns
on the individual securities within the portfolio
E) Is smaller than the
standard deviation of the portfolio
10) The intercept point of the
security market line is the rate of return that corresponds to:
A) The market rate of return
B) The beta of the market
C) Value of one
D) Value of zero
E) Risk-free rate of return
