Bsbwor501 Final Exam
1. There is a 20% probability that a particular stock will earn an 18% return and an 80% probability that it will earn 13%. What is the risk premium on this stock if the risk-free rate is 3.5%? E(R) = (.20 × .18) + (.80 × .13) = .036 + .104 = .14 = 14.00%. Risk premium = 14.00% − 3.5% = 10.50%
2. Fruity Soft Drinks just announced that their quarterly earnings will be $0.20 less than the prior quarter. This announcement will cause their stock price to. e. increase, decrease, or remain constant
3. You have a portfolio which is comprised of 60% of stock A and 40% of stock B. What is the expected rate of return on this portfolio?
Portfolio return in Boom state = (.60 × .20) + (.40 × .14) = .12 + .056 = .176
Portfolio return in Normal state = …show more content…
The Sharpe-optimal portfolio is the single combination of specified assets which lies on the efficient frontier and creates the steepest line when graphically connected to the risk-free rate. Assume the graph plots the expected return against the standard deviation.
15. The following portfolio has an expected return of _____ percent and a beta of _____. a. 10.87; 1.08
16.
17. Nondiversifiable risk: remains constant as the number of assets in a portfolio decreases.
18. A portfolio has a Treynor ratio of 0.08, a standard deviation of 18.38%, a beta of 1.34, and an expected return of 15.2%. What is the risk-free rate? Treynor ratio = .08 = (.152 − rf) / 1.34 -> .1072 = .152 − rf
Therefore, rf = .0448 = 4.48 percent
19. The minimum variance portfolio lies at the most leftward point of an efficient frontier.
20. A portfolio consists of the following two funds. 0. 53
21. A portfolio can only belong to the Markowitz efficient set of portfolios if the portfolio’s __ than that of every other portfolio that has the same level of __. II. return is greater; risk III. risk level is less; return.
22. A diversified portfolio has a beta of 0.98 and a raw return of 12.72%. The market return is 12.4% and the market risk premium is 8.1%. What is Jensen’s alpha of the
2. Fruity Soft Drinks just announced that their quarterly earnings will be $0.20 less than the prior quarter. This announcement will cause their stock price to. e. increase, decrease, or remain constant
3. You have a portfolio which is comprised of 60% of stock A and 40% of stock B. What is the expected rate of return on this portfolio?
Portfolio return in Boom state = (.60 × .20) + (.40 × .14) = .12 + .056 = .176
Portfolio return in Normal state = …show more content…
The Sharpe-optimal portfolio is the single combination of specified assets which lies on the efficient frontier and creates the steepest line when graphically connected to the risk-free rate. Assume the graph plots the expected return against the standard deviation.
15. The following portfolio has an expected return of _____ percent and a beta of _____. a. 10.87; 1.08
16.
17. Nondiversifiable risk: remains constant as the number of assets in a portfolio decreases.
18. A portfolio has a Treynor ratio of 0.08, a standard deviation of 18.38%, a beta of 1.34, and an expected return of 15.2%. What is the risk-free rate? Treynor ratio = .08 = (.152 − rf) / 1.34 -> .1072 = .152 − rf
Therefore, rf = .0448 = 4.48 percent
19. The minimum variance portfolio lies at the most leftward point of an efficient frontier.
20. A portfolio consists of the following two funds. 0. 53
21. A portfolio can only belong to the Markowitz efficient set of portfolios if the portfolio’s __ than that of every other portfolio that has the same level of __. II. return is greater; risk III. risk level is less; return.
22. A diversified portfolio has a beta of 0.98 and a raw return of 12.72%. The market return is 12.4% and the market risk premium is 8.1%. What is Jensen’s alpha of the