1 - Economists are predicting with 40% certainty that the economy is probably going to boom, in which case the returns for EMC are predicted to be 12%. They feel that there’s a 35% chance that the economy will remain in a normal pattern, in which case EMC will likely earn 8%. They think there’s a 25% chance that the economy will weaken, and if so, they think EMC will earn 2%. If you’re doing a “stand-alone” analysis of EMC, and their “Expected Rate of Return” is 8.1%, what is their approximate Standard Deviation (sigma)?
a. 15.39%
b. 12.02%
c. 8.1%
d. 3.92%
2 - A stock has a Beta of 1.25. The Risk-Free Rate of Return is 3%, and the Return on the overall Market is 12%. What would be the “risk-adjusted rate of return” that you should expect this stock to yield?
a. 9.00%
b. 14.25%
c. 12.00%
d. 11.50%
3 - You’re evaluating two stocks each on a “stand-alone” basis. Stock P has a Standard Deviation of 14.85 and a Coefficient of Variation of 8.2. Stock Q has a Standard Deviation of 32.57, and a Coefficient of Variation of 7.8. Theoretically, which is the safer of the two stocks, and by what reasoning?
a. P, because its Standard Deviation is lower
b. P, because its Coefficient of Variation is higher
c. Q, because its Standard Deviation is higher
d. Q, because its Coefficient of Variation is lower