# FINANCIAL INVESTMENT

| May 19, 2015

Question 1
1.    Consider the following realized annual returns:
Year End    Index Realized Return (%)    Stock A Realised Return (%)
2000                               23.6                                              46.3
2001                                 24.7                                             26.7
2002                              30.5                                               86.9
2003                               9.0                                               23.1
2004                            -2.0                                                0.2
2005                           -17.3                                               -3.2
2006                            -24.3                                             -27.0
2007                            32.2                                              27.9
2008                              4.4                                                 -5.1
2009                              7.4                                              -11.3
2.    The average annual return on the Index from 2000 to 2009 is closest to:

9.75%

7.10%

8.75%

4.00%
1 points
Question 2
1.    Which of the following statements is FALSE?

An efficient portfolio cannot be diversified further, that is there is no way to reduce the risk of the portfolio without lowering its expected return.

Because diversification improves with the number of stocks held in a portfolio an efficient portfolio should be a large portfolio containing many different stocks.

The beta of a security is the sensitivity of the security’s return to the return of the overall market.

We call a portfolio that contains only unsystematic risk an efficient portfolio.
1 points
Question 3
1.    Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security “X” goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security “Y” goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security “Z” goes up on average by 4% when the market goes up and goes up by 4% when the market goes down.
The risk-free rate is closest to:

16%

0%

8%

4%
1 points
Question 4
1.    What is the standard deviation of the following two asset portfolio?:
Asset 1 – weighting of 20% of value of portfolio – std dev. of returns of 15%
Asset 2 – weighting of 80% of value of portfolio – std dev. of returns of 9%
Correlation between Assets 1&2 of 0.3

8.59%

9%

10.20%

13.54%
1 points
1 points
Question 6
1.    Suppose you invest \$20,000 by purchasing 200 shares of Abbott Labs (ABT) at \$50 per share, 200 shares of Lowes (LOW) at \$30 per share, and 100 shares of Ball Corporation (BLL) at \$40 per share. Over the next year Ball has a return of 12.5%, Lowes has a return of 20%, and Abbott Labs has a return of -10%.  The value of your portfolio at the end of the year is:

\$20,000

\$20,700

\$21,000

\$21,500
1 points
Question 7
1.
Firm    Portfolio Weight    Volatility    Correlation with Market Portfolio
Taggart Transcontinental    0.25    14%    0.7
Wyatt Oil    0.35    18%    0.6
Rearden Metal    0.40    15%    0.5
2.

3.    The volatility of the market portfolio is 10%, the expected return on the market is 12%, and the risk-free rate of interest is 4%.
4.    The beta for Wyatt Oil is closest to:

0.75

0.80

1.10

1.00
1 points
Question 8
1.    Which of the following statements is FALSE?

A short sale is a transaction in which you buy a stock that you do not own and then agree to sell that stock back in the future.

It is possible to invest a negative amount in a stock or security (called a short position).

The efficient portfolios are those portfolios offering the lowest possible level of volatility for a given level of expected return.

A positive investment in a security can be referred to as a long position in the security.
1 points
Question 9
1.    Your investment portfolio consists of \$10,000 worth of Google stock.  Suppose that the risk-free rate is 4%, Google stock has an expected return of 14% and a volatility of 35%, and the market portfolio has an expected return of 10% and a volatility of 18%.  Assume that the CAPM assumptions hold.
The expected return on the alternative investment having the highest possible expected return while having the same volatility as Google is closest to?

7.0%

15.6%

12.0%

35.0%
1 points

Do you want your assignment written by the best essay experts? Order now, for an amazing discount.

Get a 5 % discount on an order above \$ 150
Use the following coupon code :
2018DISC

Category: Uncategorized

Our Services:
Order a customized paper today!