22. Assume that the risk-free rate is 5% and that the rate of return on a balanced portfolio of common stocks is 9%. If a firm has a beta coefficient of 2, then its risk premium is: А. 18% В. 10% С. 8% D. 4%
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- 3. You’ve observed the following returns on Regina computer stock over the past five years: 7%, -12%, 11%, 38% and 14% a.) What was the arithmetic average return on Regina stock over this five-year period? b.) What was the variance of Regina returns over this period? The standard deviation?24 - As the number of securities in a portfolio is increased, what happens to the average portfolio standard deviation? a) O It increases at a decreasing rate. b) It first decreases, then starts to increase as more securities are added. c) O It decreases at an increasing rate. d) O It increases at an increasing rate. e) O It decreases at a decreasing rate.A portfolio has three stocks - - 240 shares of Yahoo (YHOO), 110 Shares of General Motors (GM), and 30 shares of Standard and Poor's Index Fund (SPY). If the price of YHOO is $30, the price of GM is $30, and the price of SPY is $130, calculate the portfolio weight of YHOO and GM. O 50.0%, 22.9% O 27.5%, 42.4% 47.5%, 24.1% O 15.0%, 13.8%
- You have decided to invest in an open-end mutual fund. You are currently looking at a fund-Washington Premier Fund-in your newspaper. The fund is quoted as: Name NAV Net Chg YTD %RET 36.25 0.15 6.95 Assume that today's opening price of Washington Premier Fund equals yesterday's closing price. If you wanted to make your investment first thing this morning, then you should expect to pay for each share of since it Yesterday, each share of sold for $35.95 $43.50 $36.25 $34.44 $0.15 less $0.15 more $6.95 less $6.95 more If you had $8,000 available to invest, you could purchase than it did the day before, and offers a return of 294 368 assesses a 0.15% fee 276 shares of. is a no-load fund charges a 6.95% fee 221 Your evaluation of the Washington Premier Fund is made easier by the fact that: your investment choices are limited. mutual funds are careful to explicitly state their investment objectives. a mutual fund broker will select a customized mix for you. 0.15% 36.25% 6.95% for the year.2. Which of the following statements is FALSE? A) Stock returns will tend to move together if they are affected similarly by economic events. B) Stocks in the same industry tend to have more highly correlated returns than stocks in different industries. C) Almost all of the correlations between stocks are negative, illustrating the general tendency of stocks to move together. D) When firms carry both types of risk, only the firm-specific risk will be diversified when we combine many firms' stocks into a portfolio.Suppose Caroline is choosing how to allocate her portfolio between two asset classes: risk-free government bonds and a risky group of diversified stocks. The following table shows the risk and return associated with different combinations of stocks and bonds.CombinationFraction of Portfolio in Diversified StocksAverage Annual ReturnStandard Deviation of Portfolio Return (Risk)(Percent)(Percent)(Percent)A 0 1.50 0B 25 3.00 5C 50 4.50 10D 75 6.00 15E 100 7.50 20There is a relationship between the risk of Caroline's portfolio and its average annual return.Suppose Caroline currently allocates 75% of her portfolio to a diversified group of stocks and 25% of her portfolio to risk-free bonds; that is, she chooses combination D. She wants to reduce the level of risk associated with her portfolio from a standard deviation of 15 to a standard deviation of 5. In order to do so, she must do which of the following? Check all that apply. Sell some of her stocks and use the proceeds to purchase…
- QUESTION 1 Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Compute the standard deviation of the returns on the portfolio assuming that the two stocks' returns are uncorrelated. 17.4%. 27.4%. 7.4%. 11.4%. QUESTION 2 Elizabeth has decided to form a portfolio by putting 30% of her money into stock 1 and 70% into stock 2. She assumes that the expected returns will be 10% and 18%, respectively, and that the standard deviations will be 15% and 24%, respectively. Describe what happens to the standard deviation of the portfolio returns when the coefficient of correlation ρ decreases. The standard deviation of the portfolio returns decreases as the coefficient of correlation decreases. The standard deviation of the portfolio returns increases as the coefficient…1. Which of the following is INCORRECT? a All of a stock's risk could be unsystematic. b. A negative beta stock has an expected return less than the risk-free rate. c. Anticipated returns on any given stock are always greater than 0. d. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). 2. Which of the following measures the total risk of a portfolio? a. Beta b. Standard Deviation c. Correlation Coefficient d. Alpha 3. Which of the following stocks have the highest systematic risk? a A stock with high correlation to the market and high returm volatility. b. A stock with low correlation to the market and a high return volatility. c A stock with high correlation to the market and a low return volatility. d. A stock with low correlation to the market and a low return volatility. 4. Which of the following companics have the lowest systematic risk? a A company that sells soups (Campbells), beta=0.60 b. A coffee company…Mrs Gomez has a portfolio with an expected return of 7%. The portfolio is evenly invested in a stock and a risk-free asset. The market has an expected return of 12% and the risk-free asset has an expected return of 4%. What is the beta of the stock? O a) 0.50 b) 0.75 Od 1.00 d) 1.25 e) 1.50
- For a diversified portfolio including a large number of stocks: А. the weighted average of the betas goes to zero. В. the weighted average of unsystematic risks goes to zero. C. the weighted average of expected returns goes to zero. D. the return of the portfolio goes to zero. Е. the return on the portfolio equals the risk-free rate.3) Stock, Stock Options, and Restricted Stock are the market based unconditional compensations. Select an alternative True FalseWhich of the following is true? Risk declines at a constant rate with diversification. O Risk declines sharply with diversification and then increases as the number of stocks held increases. O Risk declines sharply with diversification and then levels out as the number of stocks held increases. Risk declines sharply with the number of shares of a stock held. Risk increases at a constant rate with the number of stocks held. When a firm dumps a product in another country, it sells it at a lower price in the foreign market, where the demand is more price- inelastic compared to the home market, where it is more elastic. a higher price in the foreign market, where the demand is more price-elastic compared to the home market, where it is less elastic. a lower price in the foreign market, where the demand is more price-elastic compared to the home market, where it is less elastic. a higher price in the foreign market, where the demand is more price- inelastic compared to the home arket, where…