What are the arithmetic and geometric average returns for a stock with annual returns of 9 percent, 12 percent, -8 percent and 19 percent? A. 8.00 percent; 7.52 percent B. 8.00 percent; 7.78 percent C. 8.00 percent; 7.06 percent D. 8.71 percent; 7.78 percent
You have a portfolio of two risky stocks that has no diversification benefit. The lack of any diversification benefit must be due to the fact that: A. the two stocks are completely unrelated to one another. B. one of the two assets is a risk free asset. C. the returns of the two stocks move perfectly in sync with one another. D. the returns of the two stocks move perfectly opposite of one another.
You recently purchased a stock that is expected to earn 35 percent in a booming economy, 19 percent in a normal economy and lose 5 percent in a recessionary economy. There is a 15 percent probability of a boom, a 75 percent chance of a normal economy, and a 10 percent chance of a recession. What is your expected rate of return on this stock? A. 17.00 percent B. 19.00 percent C. 22.37 percent D. 17.25 percent
You want your portfolio beta to be 1.3. Currently, the portfolio consists of $100,000 invested in stock A with a beta of 1.5 and $300,000 in stock B with a beta of .8. You have another $400,000 to invest and want to divide it between an asset with a beta of 2.1 and a risk-free asset. How much should you invest in the risk-free asset? A. $231,785 B. $169,382 C. $90,480 D. $309,524