Finance 343 Investments and Portfolio Management

Exam 2 Chapter 5-8

Matching -problem 1- worth 15 points

Place the letter to the matching answer next to the number

1.  Market risk a. price reflect available information

2.  Firm Specific Risk b. Avoid security analysis

3.  Weighted Average of Security Returns c. portfolio expected returns

4.  Sharpe d. price changes are unpredictable

5.  Beta e. Excess abnormal rate of return

6.  Efficient Frontier  f. Graph

7.  Optimal Risk Portfolio g. Required rate of return; beta

8.  Passive Strategy  h. Stock Price Volatility

9.  Complete Portfolio i. Research Using determinants of   values

10.  Capital Asset Pricing Model j. Includes all assets

11.   Alpha k. Price Research using patterns

12.  Random Walk l. Best Combination Of Assets

13.  Efficient market Hypothesis m. Systematic Risk

14.  Technical Analysis n. Diversification Risk

15.  Fundamental Analysis o. Index Model

2. You have been given this probability distribution for the holding-period return for KMP stock: 

What is the expected holding-period return for KMP stock?

3. You have been given this probability distribution for the holding-period return for KMP stock:

What is the expected standard deviation for KMP stock?

4. If a portfolio had a return of 18 %, the risk-free asset return was 3%, and the standard deviation of the portfolio’s excess returns was 34%, the risk premium would be _____.

5. You purchase a share of Boeing stock for $90. One year later, after receiving a dividend of $3, you sell the stock for $92. What was your holding-period return?

6. Toyota stock has the following probability distribution of expected prices one year from now:

If you buy Toyota today for $55 and it will pay a dividend during the year of $4 per share, what is your expected holding-period return on Toyota?

7. Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets.
E(RP)  12.00%

Standard Deviationof P 7.20%

T-Bill Rate 3.60%

Propotion of complete Portfolio in P 80%

Propotion of complete Portfolio in T-Bills 20%

Composition of P:

Stock A 40%

Stock B 25%

Stock C 35%

Total  100.00%

What is the expected return on Bo’s complete portfolio?

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