Question : 21.A portfolio has 40% invested in Asset 1, 50% invested : 1325692

Economics

21.A portfolio has 40% invested in Asset 1, 50% invested in Asset 2 and 10% invested in Asset 3. Asset 1 has a beta of 1.2, Asset 2 has a beta of 0.8 and Asset 3 has a beta of 1.8, what’s the beta of the portfolio?

a.1.27

b.0.80

c.1.06

d.1.20

e.Cannot tell from given information

22.A portfolio consists 20% of a risk-free asset and 80% of a stock. The risk-free return is 4%. The stock has an expected return of 15% and a standard deviation of 30%. What’s the expected return

a.12.8%

b.9.5%

c.15.0%

d.4.0%

23.The stock of Alpha Company has an expected return of 0.10 and a standard deviation of 0.25. The stock of Gamma Company has an expected return of 0.16 and a standard deviation of 0.40. The correlation coefficient between the two stock’s return is 0.2. If a portfolio consists of 40% of Alpha Company and 60% of Gamma Company, what’s the expected return of the portfolio?

a.0.126

b.0.136

c.0.160

d.0.130

24.Asset 1 has a beta of 1.2 and Asset 2 has a beta of 0.6. Which of the following statements is correct?

a.Asset 1 is more volatile than Asset 2.

b.Asset 1 has a higher expected return than Asset 2.

c.In a regression with individual asset’s return as the dependent variable and the market’s return as the independent variable, the R-squared value is higher for Asset 1 than it is for Asset 2.

d.All of the above statements are correct.

25.An investor put 40% of her money in Stock A and 60% in Stock B. Stock A has a beta of 1.2 and Stock B has a beta of 1.6. If the risk-free rate is 5% and the expected return on the market is 12%, what’s the investor’s expected return?

a.22.28%

b.14.80%

c.15.08%

d.21.80%

26.You have the following data on the securities of three firms:

Return last yearBeta

Firm A10%0.8

Firm B11%1.0

Firm C12%1.2

If the risk-free rate last year was 3%, and the return on the market was 11%, which firm had the best performance on a risk-adjusted basis?

a.Firm A

b.Firm B

c.Firm C

d.There is no difference in performance on a risk-adjusted basis

27.Expected returns are:

a.always positive.

b.always greater than the risk-free rate.

c.inherently unobservable.

d.usually equal to actual returns.

28.Which of the following is not a method used by analysts to estimate an asset’s expected return?

a.historical approach

b.probabilistic approach

c.risk-based approach

d.estimation approach

29.A drawback to the historical approach of estimating an asset’s expected return is:

a.the risk of the firm may have changed over time.

b.history always repeats itself.

c.that the range of potential outcomes is often very broad.

d.all of the above are drawbacks to the historical approach.

30.An advantage of the probabilistic approach to estimating an asset’s returns is:

a.history always repeats itself.

b.it does not require one to assume that the future will look like the past.

c.recent history is more important than future risk.

d.exact probabilities are easy to estimate.

31.A disadvantage of the probabilistic approach to estimating an asset’s returns is:

a.history always repeats itself.

b.it does not require one to assume that the future will look like the past.

c.recent history is more important than future risk.

d.that the range of possible outcomes is often broader than the scenarios used.

32.Suppose that over the last 20 years, company XYZ has averaged a return of 13%. Over the same period, the Treasury bond rate has averaged 4%. The current estimate of the Treasury bond rate is 6.5%. Using the historical approach, what is the estimate of XYZ’s expected return.

a.13.0%

b.16.5%

c.15.5%

d.19.5%

33.Suppose that over the last 30 years, company ABC has averaged a return of 10%. Over the same period, the Treasury bond rate has averaged 3%. The current estimate of the Treasury bond rate is 5%. Using the historical approach, what is the estimate of ABC’s expected return.

a.13.0%

b.12.5%

c.12.0%

d.11.0%

34.Suppose that over the last 25 years, company DEF has averaged a return of 7.5%. Over the same period, the Treasury bond rate has averaged 1.5%. The current estimate of the Treasury bond rate is 4%. Using the historical approach, what is the estimate of DEF’s expected return.

a.13.0%

b.12.5%

c.12.0%

d.10.0%

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July 1, 2023

61.When there is a shortage in a market, prices are likely to:

A. Fall because buyers do not wish to buy as much as sellers want to sell.

B. Rise because some buyers will offer to pay a higher price.

C. Fall because sellers are likely to reduce their production if prices rise.

D. Rise because the government will put a price ceiling in place.

62.If a market shortage exists:

A. The invisible hand will work to reduce the price.

B. The only solution is for the government to raise the price.

C. Producers will compete for customers by reducing prices.

D. Consumers will compete for the product by offering to pay more.

63.A market surplus occurs when:

A. People cannot buy the amount of goods and services that they are willing and able to buy.

B. The price is less than the equilibrium price.

C. The quantity supplied exceeds the quantity demanded at a given price.

D. There is a price ceiling.

64.When there is a surplus in a market, prices are likely to fall because:

A. Buyers do not wish to buy as much as sellers want to sell.

B. Some buyers will offer to pay a higher price, initiating a move up the supply curve.

C. Sellers are likely to increase their production.

D. Buyers will wait for the government to establish a price floor.

65.If a market surplus exists:

A. The only resolution is for the government to set the price.

B. Consumers will compete for the product buy offering to pay more.

C. Producers will compete for customers by reducing prices.

D. The equilibrium price is equal to the price ceiling.

66.If demand is constant, a decrease in the supply of gasoline will cause the equilibrium price:

A. To rise and quantity to fall.

B. And quantity both to rise.

C. To fall and quantity to rise.

D. And quantity both to fall.

67.If demand is constant, a leftward shift in the supply curve will result in:

A. A decrease in equilibrium quantity and a lower equilibrium price.

B. An increase in equilibrium quantity and a lower equilibrium price.

C. A decrease in equilibrium quantity and a higher equilibrium price.

D. An increase in equilibrium quantity and a higher equilibrium price.

68.The price of chocolate candy bars rises. This could be due to:

A. A decrease in the wage rate paid to workers in the candy bar factories.

B. A decrease in the cost of chocolate, which is used to produce candy bars.

C. A subsidy by the federal government for the producers of chocolate candy bars.

D. A decrease in the number of chocolate candy bar producers.

69.If demand is unchanged, a rightward shift in the supply curve for plasma TVs will cause:

A. A decrease in equilibrium quantity and a higher equilibrium price.

B. An increase in equilibrium quantity and a higher equilibrium price.

C. An increase in equilibrium quantity and a lower equilibrium price.

D. A decrease in equilibrium quantity and a lower equilibrium price.

70.Which of the following would cause a decrease in the price of automobiles?

A. A technological advance in automobile manufacturing.

B. An increase in the wages paid to automobile assembly line workers.

C. A decrease in the cost of gasoline.

D. An increase in the number of buyers.