Ch 7
Security Analysts that have evaluated Concordia Corporation, have determined that there is a 15% chance that the firm will generate earnings per share of $2.40; a 60% probability that the firm will generate earnings per share of $3.10; and a 25% probability that the firm will generate earnings per share of $3.80. What are the expected earnings per share for Concordia Corporation? (Round off to the nearest $0.01)
$3.17
Barbra purchased a piece of real estate last year for $85,000. The real estate is now worth $102,000. If Barbra needs to have a total return of 25 percent during the year, then what is the dollar amount of income that she needs to have to reach her objective?
$4,250 idk
Gunther earned a 62.5 percent return on a stock that he purchased one year ago. The stock is now worth $12, and he received a dividend of $1 during the year. How much did Gunther originally pay for the stock? A) $7.00 B) $7.50 C) $8.00 D) $8.50
$8.00
the correlation between the return on two assets _________
- is calculated by dividing the covariance of returns by the product of the standard deviations of the returns for the two assets - will always have a value between-1.0 and +1.0 - measures the relative relationship between the returns of pair of assets (all of the above)
Given the returns for two stocks with the following information, calculate the covariance of the returns for the two stocks. Assume the expected return is 10.8 percent for Stock 1 and 9.7 percent for Stock 2. Prob Stock 1 Stock 2 0.4 0.09 0.11 0.5 0.11 0.08 0.1 0.17 0.13
0.000094
Sayers purchased a stock with a coefficient of variation equal to 0.125. The expected return on the stock is 20 percent. What is the variance of the stock? A) 0.000625 B) 0.025000 C) 0.625000 D) 0.790500
0.000625
Elrond has made an investment that will generate returns that are subject to the state of the economy. Use the following information to calculate the variance of the return distribution for Elrond's investment. State Return Probability Weak 0.10 0.8 OK 0.17 0.1 Great 0.28 0.1 A) 0.0536 B) 0.0543 C) 0.0550 D) 0.0557
0.0031
Tommie has made an investment that will generate returns that are subject to the state of the economy during the year. Use the following information to calculate the standard deviation of the return distribution for Tommie's investment. (Do not round intermediate computations. Round your final answer to four decimal places.) State Return Probability Weak 0.13 0.30 OK 0.20 0.40 Great 0.25 0.30
0.0467
The expected return for the asset shown in the following table is 18.75 percent. If the return distribution for the asset is described as below, what is the standard deviation for the asset's returns? (Round intermediate computations and final answer to 6 decimal places.) Return Probability 0.10 0.25 0.20 0.50 0.25 0.25
0.054486
Stock A's returns have a standard deviation of 0.5, and stock B's returns have standard deviation of 0.6. the correlation coefficient between stock A and B equals 0.5. what is the variance of a portfolio composed of 70 percent stock A and 30 percent stock B?
0.2179 idk
Given the returns for two stocks with the following information, calculate the correlation coefficient of the returns for the two stocks. Assume the expected return for Stock 1 is 10.8 percent and 9.7 percent for Stock 2. Prob Stock 1 Stock 2 0.4 0.09 0.11 0.5 0.11 0.08 0.1 0.17 0.13
0.230967
Braniff Ground Services stock has an expected return of 9 percent and a variance of 0.25 percent. What is the coefficient of variation for Braniff? A) 0.0278 B) 0.5556 C) 1.800 D) 36.00
0.5556
Aquaman's stock returns have a standard deviation of 0.7, and Green Lantern's stock returns have standard deviation of 0.8 The correlation coefficient is 0.1. What is the standard deviation of a portfolio composed of 70 percent Aquaman and 30 percent Green Lantern? (Round the answer to five decimal points.)
0.56676
The covariance of the returns between Wildcat Stock and Sun Devil Stock is 0.09875. the variance of Wildcat is 0.2116, and the variance of Sun Devil is 0.1369. what is the correlation coefficient between the returns of the two stocks?
0.580199
If the return distribution for the asset is described as below, what is the standard deviation for the asset's returns? (Do not round your intermediate calculations. Round your percentage answers to two decimal places.) Expected return for the asset = (0.12 × 15%) + (0.10 × 50%) + (0.07 × 35%) = 9.25% Variance = (0.12 − 0.0925)2 × 0.15 + (0.10 − 0.0925)2 × 0.50 + (0.07 − 0.0925)2 × 0.35 =0.0001134 + 0.0000281 + 0.0001772 = 0.0003188. Standard deviation =√Variance = √0.0003188= 0.01785 = 1.79% (rounded).
1.79%
View Point Industries has forecasted a rate of return of 20.00\% if the economy booms (25.00% probability)of return of 15.00% if the economy in a growth phase (45.00% probability)a rate of return of % if the economy is in decline (20.00% probability: and a rate of return of -15.00\% if the economy is in a depression (10,00\% probability)What is View Point's standard deviation of returns? Do not round intermediate computationsRound your final answer to two decimal points.
10.46%
Data for Hugh's Corporation is provided below. Hugh's recently acquired some risky assets that caused its beta to increase by 30%. What is the stock's new expected rate of return according to the CAPM? Initial beta1.00Initial expected return (rs) 10.20% Market risk premium, E(Rm - Rrf) 6.00% Percentage increase in beta 30.00%
12% idk
Use the following table to calculate the expected return for the asset. Return Probability 0.05 0.1 0.1 0.15 0.15 0.5 0.25 0.25
15.75% idk
George Wilson purchased Bright Light Industries common stock for $47.50 on January 31, 2010. The firm paid dividends of $1.10 during the last 12 months. George sold the stock today (January 30, 2011) for $54.00. What is George's holding period return? Round off the nearest 0.01%. A) 16.00% B) 14.35% C) 11.28% D) 19.60%
16%
The beta of Elsenore, Inc., stock is 1.6, whereas the risk-free rate of return is 8 percent. If the expected return on the market is 15 percent, then what is the expected return on Elsenore?
19.20%
The expected return on Kiwi computers stock is 16.6 percent. if the risk free rate is 4% and the expected return on the market is 10% then what is Kiwi's beta?
2.10
The CEO of Coral Gables Corp. was reviewing the returns of the company's sizeable investment portfolio in the last five years during a period of extreme volatility. He noted the 5 year sequence of investment returns as follows: +30%, -20%, +30%, -20%, +30%. He then calculated the arithmetic average return, but his CFO noted that since he had ignored the compounding effect he was wrong. By how much was he wrong?
2.95% idk
Francis purchased a stock one year ago for $20, and it is now worth $24. The stock paid a dividend of $3 during the year. What was the stock's rate of return from capital appreciation during the year? (Round your answer to the nearest percent.) A) 17% B) 20% C) 29% D) 35%
20% idk
company A has a beta of .70 while company B has a beta of 1.20. the required return on the stock market is 11% and the risk free rate is 4.25%. what is the difference between A's and ab's required rates of return?
3.38%
The beta of Ricci Co.'s stock is 3.2, whereas the risk-free rate of return is 9%. if the expected return on the market is 18%, then what should investors expect as a return on Ricci Co. ?
37.8%
Books Brothers stock was priced at $15 per share two years ago. The stock sold for $13 last year and now it sells for $18. What was the total return for owning Books Brothers stock during the most recent year? Assume that no dividends were paid and round to the nearest percent. A) 17% B) 20% C) 23% D) 38%
38% idk
The expected return on Karol Co. stock is 16.5%. if the risk-free rate is 5% and the beta of Karol Co is 2.3, then what is the risk premium on the market portfolio?
5% idk
Jim Keys holds a $200,000 portfolio consisting of the following stocks: Stock Investment Beta Alpha $50,000 0.50 Beta $50,000 0.80 Gamma $50,000 1.00 Delta $50,000 1.30 What is the portfolio's beta?
50,000/200,000=.25 =.25(0.5)+.25(0.8)+.25(1)+.25(1.3) =.125+.2+.25+.325 =0.90
You purchased a share of Blyton Industries common stock 1 year ago for $37.50. During the year you received dividends totaling $.60 and today the stock can be sold for $39.28. what total return did you earn on this stock over the past year?
6.3% idk
You have invested 20 percent of your portfolio in Homer, Inc., 40 percent in Marge co., and 20 percent in Bart Resources. what is the expected return of your portfolio if Homer, Marge, and Bart have expected returns of 2%,18%,3%, respectively?
8.2%
which of the following investors should be willing to pay the highest price for an asset?
An investor with a diversified portfolio.
The covariance of the returns between Stock A and stock B is 0.0087. the standard deviation of stock A is 0.26, and the standard deviation of stock B is 0.37. what is the correlation coefficient between the returns of the two stocks?
Correlation coefficient = Covariance/(standard deviation of Stock A * standard deviation of Stock B) .0087 / (.26*.37) = .0087 / 0.0962 = 0.0904
The expected return on Mike's seafood stock is 17.9 percent. if the expected return on the market is 13% and the beta for Kiwi is 1.7, then what is the risk-free rate?
E(RMike) = 0.179 = Rrf + βMike(E(RM) - Rrf) =Rrf + 1.7(0.13 - Rrf ) = Rrf = 0.006 = 6%
use the following table to calculate the expected return from the asset return. probability 0.1. 0.25 0.2. 0.5 0.25. 0.25
E(Rasset)= (0.1*0.25)+(0.2*0.5)+(0.25*0.25) = 18.75%
the risk-free rate of return is 2.5% and the expected return on the market is 8%. if the beat on Ridgeway Co. stock is 0.8, then what is Ridgeway's expected return?
E(Ri) = Rrf + βi[E(Rm) - Rrf ] = 2.5% + [0.8 × (8% - 2.5%)] = 2.5% + [0.8 × 5.5%] = 6.9%. 6.9%
Total holding period return is the dollar gain (or loss) from purchasing an asset and selling it later
False
which of the following is true of risk and expected returns?
Higher the risk, higher the expected returns on an investment.
The CEO and CFO of Coral Gables Corp were having a discussion about which stock to buy with the company's surplus cash. The CFO noted that it was important that the company incurs less risk for a given level of return and suggested using the Sharpe Ratio to choose between AMD and Intel. They both noted that the expected return on AMD in the next year is 12% and the average return on INTC is 9%, however the standard deviation on AMD is 0.13164 and on INTC is 0.11140. Assuming the risk-free rate Rrf is expected to be 3% what are the Sharpe Ratios of AMD and INTC, and which is the better investment based on these ratios?
S AMD = 0.68; S INTC = 0.54; AMD S AMD= (.12-.03)/.131164 =.68 S INTC=(.09-.03)/.11140 =.54 This indicates that the return for each one standard deviation of risk is greater for AMD than for INTC are a better investment.
Suppose Stan holds a portfolio consisting of a $10,000 investment in each of 8 different common stocks. The portfolio's beta is 1.25. Now suppose Stan decided to sell one of his stocks that has a beta of 1.00 and to use the proceeds to buy a replacement stock with a beta of 1.35. What would the portfolio's new beta be? a. 1.17 b. 1.23 c. 1.29 d. 1.36 e. 1.43
c. 1.29
The total holding period return on an investment ____
consists of a capital appreciation component and an income component.
the larger the variance, the smaller the standard deviation
false
the systematic risk of an investment is measured by _______.
it's beta
Given the historical information in the chapter, which of the following investment classes had the highest variability in returns?
small US stocks
To calculate an expected return, each scenario return is weighted by _____.
the probability of its occurrence
which of the following represents a plot of the relation between expected return and systematic risk?
the security market line
if the expected return on an asset is greater than it's required return given on the security market line, the stock is ______
underpriced
which of the following statements is correct?
when choosing between two investments that have the same level or risk, investors prefer the investment with the higher return