Week 5 Homework – Finance

Question 1

1. The stock of Billingsley United has a beta of 0.92. The market risk premium is 8.4 percent and the risk-free rate is 3.2 percent. What is the expected return on this stock?

8.87 percent

9.69 percent

10.93 percent

11.52 percent

12.01 percent

Question 2

1. You own a portfolio that has $1,900 invested in Stock A and $2,700 invested in Stock B. If the expected returns on these stocks are 9 percent and 15 percent, respectively, what is the expected return on the portfolio?

10.57 percent

11.14 percent

11.96 percent

12.52 percent

13.07 percent

Question 3

1. A $36,000 portfolio is invested in a risk-free security and two stocks. The beta of stock A is 1.29 while the beta of stock B is 0.90. One-half of the portfolio is invested in the risk-free security. How much is invested in stock A if the beta of the portfolio is 0.58?

$6,000

$9,000

$12,000

$15,000

$18,000

Question 4

1. You own a portfolio of two stocks, A and B. Stock A is valued at $6,540 and has an expected return of 11.2 percent. Stock B has an expected return of 8.1 percent. What is the expected return on the portfolio if the portfolio value is $9,500?

9.58 percent

9.62 percent

9.74 percent

9.97 percent

10.23 percent

Question 5

1. The systematic risk is same as:

Unique risk

Diversifiable risk

Asset-specific risk

Market risk

Unsystematic risk

Question 6

1. Portfolio diversification eliminates which one of the following?

Total investment risk

Portfolio risk premium

Market risk

Unsystematic risk

Reward for bearing risk

Question 7

1. What is the beta of the following portfolio?

0.98

1.02

1.11

1.14

1.20

Question 8

1. What is the beta of the following portfolio?

1.08

1.14

1.17

1.21

1.23

Question 9

1. Standard deviation measures _____ risk while beta measures _____ risk.

systematic; unsystematic

unsystematic; systematic

total; unsystematic

total; systematic

asset-specific; market

Question 10

1. You have observed the following returns on ABC’s stocks over the last five years:

3.8%, 8.8%, -5.8%, 12.7%, -3.8%

What is the arithmetic average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 11

1. Suppose a stock had an initial price of $98.05 per share, paid a dividend of $8.6 per share during the year, and had an ending share price of $86.45. What are the percentage returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 12

1. You have observed the following returns on ABC’s stocks over the last five years:

2.2%, 9.1%, 8.9%, 12.9%, 6.4%

What is the geometric average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 13

1. You have observed the following returns on ABC’s stocks over the last five years:

2.1%, 8.8%, 12.4%, 13.1%, 4.9%

What is the arithmetic average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 14

1. Calculate the expected returns of your portfolio

Stock Invest Exp Ret

A $199 3.6%

B $714 14.3%

C $455 25%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 15

1. You own a portfolio invested 21.65% in Stock A, 12.78% in Stock B, 13.99% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.48, 1.2, 0.79, and 1.26. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 16

1. Suppose the real rate is 5.67% and the inflation rate is 5.08%. Solve for the nominal rate.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 17

1. Calculate the expected returns of your portfolio

Stock Invest Exp Ret

A $349 8%

B $856 19.6%

C $1,367 27.8%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 18

1. You have observed the following returns on ABC’s stocks over the last five years:

4.9%, 8.1%, -13%, 11.2%, -8.6%

What is the geometric average returns on the stock over this five-year period.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 19

1. Suppose a stock had an initial price of $78.69 per share, paid a dividend of $7.8 per share during the year, and had an ending share price of $81.95. What are the percentage returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 20

1. A portfolio is invested 31.1% in Stock A, 19.4% in Stock B, and the remainder in Stock C. The expected returns are 11.3%, 20.8%, and 6.4% respectively. What is the portfolio’s expected returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 21

1. You own a portfolio invested 22.72% in Stock A, 16.67% in Stock B, 28.63% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.65, 0.19, 0.73, and 1.39. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 22

1. Suppose a stock had an initial price of $92.58 per share, paid a dividend of $7.9 per share during the year, and had an ending share price of $85.61. What are the dollar returns?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 23

1. Suppose a stock had an initial price of $75.53 per share, paid a dividend of $8 per share during the year, and had an ending share price of $80.82. If you own 277 shares, what are the dollar returns?

Note: Enter your answer rounded off to two decimal points. Do not enter $ or comma in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 24

1. Suppose the returns for Stock A for last six years was 4%, 7%, 8%, -2%, 9%, and 7%.

Compute the standard deviation of the returns.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 25

1. Suppose a stock had an initial price of $93.51 per share, paid a dividend of $5.8 per share during the year, and had an ending share price of $100.77. What are the percentage returns if you own 25 shares?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 26

1. Suppose the real rate is 3.02% and the nominal rate is 13.89%. Solve for the inflation rate.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 27

1. Suppose the nominal rate is 13.62% and the inflation rate is 5.45%. Solve for the real rate.

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 0.12345 then enter as 12.35 in the answer box.

Question 28

1. Based on the following information, calculate the expected returns:

Prob Return

Recession 30% 48.6%

Boom 70% 24.1%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.