QUESTION 1: The common stock of Detroit Engines has a beta of 1.17 and expected returns of 14.64 percent. The risk-free rate is 4.5 percent. What is the expected return on the market?
Hint: Use the CAPM equation to get the answer. Enter your answer in percentages rounded off to two decimal points.
QUESTION 2: You own a portfolio invested 20.74% in Stock A, 18.77% in Stock B, 26.22% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.26, 0.77, 0.57, and 1.08. What is the portfolio beta?
Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.
QUESTION 3: Given the data below, compute the standard deviation for stock A. Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.
|
Event
|
Probability
|
Returns
|
|
Pessimistic
|
30%
|
12%
|
|
Most Likely
|
45%
|
-15%
|
|
Optimistic
|
25%
|
5%
|
QUESTION 4: The common stock of Detroit Engines has a beta of 1.87 and expected returns of 12.14 percent. The risk-free rate is 4.39 percent. What is the expected return on the market?
Hint: Use the CAPM equation to get the answer. Enter your answer in percentages rounded off to two decimal points.
QUESTION 5: ABC Inc.'s stock has a 40% chance of producing a 4.7% return, a 25% chance of producing a 18.8% return, and a 35% chance of producing a 16% return. What is ABC Inc's expected return?
Enter your answer in percentages rounded off to two decimal points.
QUESTION 6: Security A has expected return of 18.6% and beta of 0.8. If the risk-free rate is 5.8%, what is the reward-to-risk rate for Security A?
Enter your answer as a percentage rounded off to two decimal points.
QUESTION 7: Given the investment in Stocks A, B, and C, compute the expected return on the portfolio. Enter your answer in percentages, rounded off to two decimal points.
|
Stock
|
Investment
|
Exp Returns
|
|
A
|
$1500
|
8%
|
|
B
|
$2000
|
4%
|
|
C
|
$2500
|
-2%
|
QUESTION 8: If the expected return on Stock A is 14.11% and the return on the market is 9%. What is the beta for Stock A if the risk-free rate is 4%?
Hint: Use the CAPM equation to get the answer. Enter your answer in percentages rounded off to two decimal points.
QUESTION 9: Security A has expected return of 14% and beta of 1.60. Security B has expected return of 10% and beta of 0.80. What would hte risk-free rate have to be for the two stocks to be correctly priced relative to each other?
Enter your answer as percentage rounded off to two decimal points.
QUESTION 10: A portfolio contains 251 shares of Stock A that sell for $60 each, 324 shares of Stock B that sell for $110 each and 90 shares of Stock C that sell for $7 each. What is the portfolio expected return if the expected returns on these stocks is 11.4%, 13.2%, and 3% respectively?
Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.
QUESTION 11: Suppose you have a portfolio where you have invested $7,364 in Stock A and Stock B. Stock A has an expected return of 16.8% and Stock B has an expected return of 5.1%. If your goal is to create a portfolio with an expected return of 11.8%, what is your dollar investment in Stock B?
Note: Enter your answer rounded off to two decimal points.
QUESTION 12: Portfolio diversification eliminates which one of the following?
Market risk
Reward for bearing risk
Total investment risk
Unsystematic risk
Portfolio risk premium
QUESTION 13: Suppose your portfolio consists of Stock A and Stock B. Stock A has an expected return of 19.9% and Stock B has an expected return of 4%. If your goal is to create a portfolio with an expected return of 8.9%, what is your weight in Stock A?
Note: Enter your answer in percentages rounded off to two decimal points.
QUESTION 14: Stock Y has an expected return of 14% and beta of 1.80. Stock Z has an expected return of 11.50% and beta of 1.10. If the risk-free rate is 3.5% and the market risk premium is 6.5%, which security is overvalued?
Stock Z, because it plots above the SML
Stock Y, because it plots above the SML
Stock Z, because it plots below the SML
Stock Y, because it plots below the SML
QUESTION 15: Stock A has a beta of 0.8. The risk-free asset has a beta of zero. The portfolio of these two securities has a beta of 0.6, what is the weight of Stock A in the portfolio?
Enter your answer in percentages rounded off to two decimal points.
QUESTION 16: You have invested 33.6% in Stock A, 36.3% in Stock B, and the remainder in the risk free asset. You want a portfolio to be as risky as the market (i.e. you want the beta of your portfolio to equal 1). If Stock A has beta of 1.1, what is the beta of Stock B?
Note: Enter your answer rounded off to two decimal points.
QUESTION 17: Given the investment in Stocks A, B, and C, compute the portfolio beta. Enter your answer rounded off to two decimal points
|
Stock
|
Investment
|
Beta
|
|
A
|
$1800
|
1.44
|
|
B
|
$2400
|
1.58
|
|
C
|
$3400
|
0.92
|
QUESTION 18: Given the data below, compute the standard deviation for stock A. Enter your answer in percentages rounded off to two decimal points.
|
Event
|
Probability
|
Returns
|
|
Pessimistic
|
25%
|
13%
|
|
Most Likely
|
50%
|
15%
|
|
Optimistic
|
25%
|
17%
|
QUESTION 19: You own a portfolio invested 28.8% in Stock A, 15.89% in Stock B, 14.05% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.75, 0.79, 0.45, and 1.07. What is the portfolio beta?
Note: Enter your answer rounded off to two decimal points.
QUESTION 20: The common stock of Detroit Engines has a beta of 1.81. The expected return on the market is 11 percent and the risk-free rate is 5 percent. What is the firm's expected return, E(Ri)?
Hint: Use the CAPM equation to get the answer.
Enter your answer in percentages rounded off to two decimal points.
QUESTION 21: The common stock of Detroit Engines has a beta of 1.23 and expected returns of 14.19 percent. The expected return on the market is 3.72 percent. What is the risk-free rate?
Hint: Use the CAPM equation to get the answer. Enter your answer in percentages rounded off to two decimal points.
QUESTION 22: Suppose your portfolio consists of Stock A and Stock B. Stock A has an expected return of 17.6% and Stock B has an expected return of 6.9%. If your goal is to create a portfolio with an expected return of 10.9%, what is your weight in Stock B?
Note: Enter your answer in percentages rounded off to two decimal points.
QUESTION 23: Given the data below, compute the standard deviation for stock B. Enter your answer in percentages rounded off to two decimal points.
|
Event
|
Probability
|
Returns
|
|
Pessimistic
|
25%
|
7%
|
|
Most Likely
|
50%
|
15%
|
|
Optimistic
|
25%
|
23%
|
QUESTION 24: Calculate the expected returns of your portfolio
|
Stock
|
Invest
|
Exp Ret
|
|
A
|
$493
|
3.7%
|
|
B
|
$669
|
13%
|
|
C
|
$380
|
29.8%
|
Note: Enter your answer in percentages rounded off to two decimal points.
QUESTION 25: A portfolio is invested 27.6% in Stock A, 17.3% in Stock B, and the remainder in Stock C. The expected returns are 9.4%, 23.8%, and 24.1% respectively. What is the portfolio's expected returns?
Note: Enter your answer in percentages rounded off to two decimal points.
QUESTION 26: You want a portfolio as risky as the market. Given the information below, compute the weight of the risk-free asset.
Enter your answer in percentages, rounded off to two decimal points.
|
Asset
|
Investment
|
Beta
|
|
Stock A
|
40.00%
|
1.4
|
|
Stock B
|
25.00%
|
0.9
|
|
Stock C
|
?
|
2.25
|
|
Risk-free asset
|
?
|
?
|
QUESTION 27: The common stock of ABC has a beta of 1.56. The market risk premium is 11.2 percent and the risk-free rate is 5.1 percent. What is the firm's expected return, E(Ri)?
Hint: Use the CAPM equation to get the answer. Enter your answer in percentages rounded off to two decimal points.
QUESTION 28: Suppose you have a portfolio where you have invested $9,882 in Stock A and Stock B. Stock A has an expected return of 14.2% and Stock B has an expected return of 4.1%. If your goal is to create a portfolio with an expected return of 10.7%, what is your dollar investment in Stock A?
Note: Enter your answer rounded off to two decimal points.