finance quiz 2

Topics: Capital asset pricing model, Bond, Modern portfolio theory Pages: 4 (669 words) Published: August 23, 2014
Which of the following is incorrect, regarding the beta?
Select one:
a. Beta for market portfolio is less than one
b. Assets with beta less than one are said to have lower systematic risk c. Beta is a measure of total risk
d. Beta for market portfolio is less than one and beta is a measure of total risk Shares in Flamingo Hotel Holdings have a beta of 2.7. If the expected return on the market portfolio is 8.2% and the risk free rate is 3.3%, what return should investors demand on Flamingo shares? Select one:

a. 4.9%
b. 11.5%
c. 13.53%
d. 16.53%
Aunty Vera has given us $500,000 to invest. We have found a stock we want to research “Sensational Weights and Measures”. Using our new knowledge we use CAPM to calculate that the expected return is 29%. We find that its Beta is 1.6.

The Risk Free Rate is 4.5%.
With our $500,000 we decide to invest 80% into the risk free investment and 20% into “Sensational Weights and Measures” stock. What is the expected return on this portfolio? Select one:
a. 8.57%
b. 9.40%
c. 11.25%
d. 12.02%
Given exactly the same information as Question 3, what is the reward to risk ratio of this stock? Select one:
a. 11.26%
b. 12.58%
c. 15.31%
d. 17.17%
On 1 January an investor purchased shares in Big Golf for $87 On 31 December of that year the shares were worth $115.
During the year a dividend of $2.58 was paid.
Inflation during the year was 1.9%.
What was the investor’s total real return on this stock?
Select one:
a. 32.63%
b. 33.25%
c. 32.18%
d. 13.26%
Sensation Limited issues bonds with a $1,000 face value that make coupon payments of $40 every three months. What is the coupon rate? Select one:
a. 0.4%
b. 4%
c. 8%
d. 16%
You examine two stocks. Battery City has a beta of 1.7, Bottlers Inc. has a beta of 2.6. Bottlers Inc. has: Select one:
a. lower systematic risk and higher total risk
b. higher systematic risk and lower total risk
c. both higher systematic risk and higher...
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