Question 1: Here are the expected returns on two stocks:
Returns
Probability X Y
0.1 -20% 10%
0.8 20 15
0.1 40 20
If you form a 50-50 portfolio of the two stocks, what is the portfolio's standard deviation?
a. 16.5%
b. 10.5%
c. 13.4%
d. 8.1%
e. 20.0%
Question 2: A share of preferred stock pays a quarterly dividend of $1.00. If the price of the stock is $50, what is the nominal (not effective) annual rate of return?
a. 8.0%
b. 8.5%
c. 10.0%
d. 9.0%
e. 9.5%