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