Finance 3716 Chapter 12 math
A stock market comprises 1500 shares of stock A and 3000 shares of stock B. The share prices for stocks A and B are $24 and $34 , respectively. What is the capitalization of the market portfolio?
A) $138,000
A stock market comprises 4600 shares of stock A and 2000 shares of stock B. Assume the share prices for stocks A and B are $25 and $35 , respectively. What is the capitalization of the market portfolio?
A) $185,000
Suppose you invest in 100 shares of Harley-Davidson (HOG) at $40 per share and 230 shares of Yahoo (YHOO) at $25 per share. If the price of Harley-Davidson increases to $50 and the price of Yahoo decreases to $20 per share, what is the return on your portfolio?
A) -1.54%
A portfolio comprises Coke (beta of 1.4) and Wal-Mart (beta of 0.8). The amount invested in Coke is $20,000 and in Wal-Mart is $30,000. What is the beta of the portfolio?
A) 1.04
UPS, a delivery services company, has a beta of 1.4, and Wal-Mart has a beta of 0.9. The risk-free rate of interest is 4% and the market risk premium is 6%. What is the expected return on a portfolio with 50% of its money in UPS and the balance in Wal -Mart?
A) 10.9%
UPS, a delivery services company, has a beta of 1.1, and Wal-Mart has a beta of 0.7. The risk-free rate of interest is 4% and the market risk premium is 7%. What is the expected return on a portfolio with 30% of its money in UPS and the balance in Wal -Mart?
A) 9.74%
You observe the following scatterplot of Fordʹs weekly returns against the S&P 500. Which of the following statements is true about Fordʹs beta against the S&P 500?
A) Fordʹs beta appears to be positive.
A portfolio has 30% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 35% and 30%, respectively, and the correlation between IBM and MSFT is 0.5. What is the standard deviation of the portfolio?
B) 27.78 %
The volatility of Home Depot Share prices is 50% and that of General Motors shares is 50%. When I hold both stocks in my portfolio and the stocks returns have zero correlation, the overall volatility of returns of the portfolio is ________.
B) less than 50%
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. Suppose over the next year Ball has a return of 12.3%, Lowes has a return of 23%, and Abbott Labs has a return of -10%. The value of your portfolio over the year is ________.
C) $20,872
A portfolio comprises Coke (beta of 1.3) and Wal-Mart (beta of 0.7). The amount invested in Coke is $20,000 and in Wal-Mart is $20,000. What is the beta of the portfolio?
C) 1.00
Your retirement portfolio comprises 300 shares of the S&P 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $136 and that of AGG is $97 . If you expect the return on SPY to be 11% in the next year and the return on AGG to be 10%, what is the expected return for your retirement portfolio?
C) 10.81%
Your estimate of the market risk premium is 9%. The risk-free rate of return is 3.8% and General Motors has a beta of 1.4. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
C) 16.4%
Stock Duke Energy Microsoft Wal-Mart Expected Standard Return Deviation 14% 6% 44% 24% 23% 14% Correlation with Duke Energy 1.0 -1.0 0.0 Correlation with Microsoft -1.0 1.0 0.7 Correlation with Wal-Mart 0.0 0.7 1.0 28) Which of the following combinations of two stocks would give you the biggest reduction in risk?
C) Microsoft and Duke Energy
Historically, the average excess return of the S&P 500 over the return of U.S. Treasury bonds has been ________ and is proxy for the market risk premium.
C) between 5% and 7%
The volatility of Home Depot share prices is 30% and that of General Motors shares is 15%. When I hold both stocks in my portfolio and the stocks returns have a correlation of 1, the overall volatility of returns of the portfolio is ________.
C) unchanged at 30%
The volatility of Home Depot share prices is 30% and that of General Motors shares is 30%. When I hold both stocks in my portfolio with an equal amount in each, and the stocks returns have a correlation of minus 1, the overall volatility of returns of the portfolio is ________.
C) zero
Your estimate of the market risk premium is 7%. The risk-free rate of return is 4%, and General Motors has a beta of 1.4. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
D) 13.8%
Suppose you invest $22,500 by purchasing 200 shares of Abbott Labs (ABT) at $55 per share, 200 shares of Lowes (LOW) at $35 per share, and 100 shares of Ball Corporation (BLL) at $45 per share. The weight of Lowes in your portfolio is ________.
D) 31.11 %
Consider the following returns: Year-End 2000 2001 2002 2003 2004 2005 IBM Realized Return 0.2% -3.2% -27.0% 27.9% -5.1% -11.3% Premium 453 Lowes Realized Return Home Depot Realized Return 20.1 % -14.6% 72.7% 4.5 % -25.7% -58.1% 56.9 % 71.8 % 6.7% 17.3% 17.9% 0.9% The covariance between Lowesʹ and Home Depotʹs returns is closest to ________.
A) 0.10
A portfolio comprises Coke (beta of 1.6) and Wal-Mart (beta of 0.6). The amount invested in Coke is $10,000 and in Wal-Mart is $20,000. What is the beta of the portfolio?
A) 0.93
The price of Microsoft is $30 per share and that of Apple is $58 per share. The price of Microsoft increases to $39 per share after one year and to $42 after two years. Also, shares of Apple increase to $66 after one year and to $71 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return over year 1 and year 2? Assume no dividends are paid.
A) 19.32%, 7.62%
Consider the following returns: Lowes Realized Return Home Depot Realized Return 20.0 % -14.6% 72.7% 4.4% -25.7% -58.1% 56.2 % 71.3 % 6.7% 17.3% 17.9% 0.9% Year-End 2000 2001 2002 2003 2004 2005 IBM Realized Return 0.2% -3.2% -27.0% 27.9% -5.1% -11.3% The volatility on Lowesʹ returns is closest to ________.
A) 35%
A portfolio has three stocks 240 shares of Yahoo (YHOO), 150 Shares of General Motors (GM), and 40 shares of Standard and Poorʹs Index Fund (SPY). If the price of YHOO is $30, the price of GM is $30, and the price of SPY is $130, calculate the portfolio weight of YHOO and GM.
A) 42.6%, 26.6%
Suppose you invest $22,500 by purchasing 200 shares of Abbott Labs (ABT) at $55 per share, 200 shares of Lowes (LOW) at $35 per share, and 100 shares of Ball Corporation (BLL) at $45 per share. The weight of Abbott Labs in your portfolio is ________.
A) 48.89 %
A stock market comprises 4700 shares of stock A and 2300 shares of stock B. Assume the share prices for stocks A and B are $25 and $30 , respectively. What proportion of the market portfolio is comprised of stock A?
A) 63.0%
Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a(n) 6% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange -traded fund (ETF) with a 11% expected return and a 20% volatility. The expected return on your of your investment is closest to ________.
A) 7%
Your retirement portfolio comprises 100 shares of the Standard & Poorʹs 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $118 and that of AGG is $97. If you expect the return on SPY to be 11% in the next year and the return on AGG to be 6%, what is the expected return for your retirement portfolio?
A) 8.74%
A stock market comprises 2100 shares of stock A and 2100 shares of stock B. The share prices for stocks A and B are $25 and $15 , respectively. What proportion of the market portfolio is comprised of each stock?
A) Stock A is 62.5% and Stock B is 37.5%.
Which of the following equations is INCORRECT?
A) xi = Total value of portfolio/ Value of investment i
A stock market comprises 2400 shares of stock A and 2400 shares of stock B. The share prices for stocks A and B are $15 and $5, respectively. What is the capitalization of the market portfolio?
B) $48,000
A stock market comprises 4600 shares of stock A and 1600 shares of stock B. Assume the share prices for stocks A and B are $15 and $30 , respectively. If you have $15,000 to invest and you want to hold the market portfolio, how much of your money will you invest in Stock A?
B) $8846.15
The price of Microsoft is $25 per share and that of Apple is $50 per share. The price of Microsoft increases to $36 per share after one year and to $41 after two years. Also, shares of Apple increase to $56 after one year and to $66 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return over year 1 and year 2? Assume no dividends are paid.
B) 22.67 %, 16.30 %
Suppose you invest in 220 shares of Johnson and Johnson (JNJ) at $70 per share and 240 shares of Yahoo (YHOO) at $20 per share. If the price of Johnson and Johnson increases to $80 and the price of Yahoo decreases to $18 per share, what is the return on your portfolio?
B) 8.51%
Consider the following expected returns, volatilities, and correlations: Stock Correlation with Wal-Mart Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft 14% 6% 1.0 -1.0 44% 24% -1.0 1.0 23% 14% 0.0 0.7 Duke Energy 0.0 Microsoft 0.7 Wal-Mart 1.0 The volatility of a portfolio that is equally invested in Duke Energy and Microsoft is closest to ________.
B) 9.0%
Your estimate of the market risk premium is 6%. The risk-free rate of return is 4%, and General Motors has a beta of 1.6. According to the Capital Asset Pricing Model (CAPM), what is its expected return?
C) 13.6%
The price of Microsoft is $37 per share and that of Apple is $43 per share. The price of Microsoft increases to $42 per share after one year and to $47 after two years. Also, shares of Apple increase to $49 after one year and to $59 after two years. If your portfolio comprises 100 shares of each security, what is your portfolio return in year 1 and year 2? Assume no dividends are paid.
C) 13.75 %, 16.48 %
UPS, a delivery services company, has a beta of 1.6, and Wal-Mart has a beta of 0.9. The risk-free rate of interest is 6% and the market risk premium is 9%. What is the expected return on a portfolio with 40% of its money in UPS and the balance in Wal -Mart?
C) 16.62%
Suppose you invest in 110 shares of Merck (MRK) at $40 per share and 120 shares of Yahoo (YHOO)at $25 per share. If the price of Merck increases to $45 and the price of Yahoo decreases to $22 per share, what is the return on your portfolio?
C) 2.57%
Suppose you invest $15,000 by purchasing 200 shares of Abbott Labs (ABT) at $40 per share, 200 shares of Lowes (LOW) at $20 per share, and 100 shares of Ball Corporation (BLL) at $30 per share. The weight of Ball Corporation in your portfolio is ________.
C) 20.00%
A portfolio has three stocks 300 shares of Yahoo (YHOO), 300 Shares of General Motors (GM), and 80 shares of Standard and Poorʹs Index Fund (SPY). If the price of YHOO is $20, the price of GM is $30, and the price of SPY is $150, calculate the portfolio weight of YHOO and GM.
C) 22.2%, 33.3%
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. Suppose over the next year Ball has a return of 12.5%, Lowes has a return of 21%, and Abbott Labs has a return of -10%. The return on your portfolio over the year is ________.
C) 3.8%
Consider the following returns: Year-End 2000 2001 2002 2003 2004 2005 IBM Realized Return 0.2% -3.2% -27.0% 27.9% -5.1% -11.3% Premium 455 Lowes Realized Return Home Depot Realized Return 20.3 % -14.6% 72.7% 4.8 % -25.7% -58.1% 56.3 % 71.7 % 6.7% 17.3% 17.9% 0.9% The volatility on Home Depotʹs returns is closest to ________.
C) 42%
Consider the following expected returns, volatilities, and correlations: Expected Return Standard Deviation Correlation with Duke Energy Correlation with Microsoft 14% 6% 1.0 -1.0 44% 24% -1.0 1.0 23% 12% 0.0 0.7 Stock Correlation with Wal-Mart Duke Energy 0.0 Microsoft 0.7 Wal-Mart 1.0 The volatility of a portfolio that is equally invested in Wal-Mart and Duke Energy is closest to ________.
C) 6.7%
You observe that AT&T stock and the S&P 500 have the following weekly returns: 1 2 3 4 0.005 0.010 -0.003 -0.005 If this pattern of stock returns is typical of AT&T stock, and you calculated a beta against the S&P 500, which of the following is true?
C) AT&Tʹs beta is positive.
Which of the following equations is INCORRECT??
C) Corr(Ri,Rj) = Cov(Ri,Rj)/Var(Ri)Var(Rj)
Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a(n) 6% interest rate to invest in the stock market. You invest the entire $20,000 in an exchange -traded fund (ETF) with a 10% expected return and a 20% volatility. Assume that the ETF you invested in returns -10%. Then the realized return on your investment is closest to ________.
D) -26%
A portfolio has three stocks 110 shares of Yahoo (YHOO), 210 Shares of General Motors (GM), and 70 shares of Standard and Poorʹs Index Fund (SPY). If the price of YHOO is $20, the price of GM is $20, and the price of SPY is $130, calculate the portfolio weight of YHOO and GM.
D) 14.2%, 27.1%
A portfolio has 40% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 40% and 30%, respectively, and the correlation between IBM and MSFT is -0.3. What is the standard deviation of the portfolio?
D) 20.18 %
A portfolio has 45% of its value in IBM shares and the rest in Microsoft (MSFT). The volatility of IBM and MSFT are 33% and 35%, respectively, and the correlation between IBM and MSFT is 0. What is the standard deviation of the portfolio?
D) 24.31 %
Your retirement portfolio comprises 200 shares of the S&P 500 fund (SPY) and 100 shares of iShares Barclays Aggregate Bond Fund (AGG). The price of SPY is $134 and that of AGG is $110 . If you expect the return on SPY to be 10 % in the next year and the return on AGG to be 8%, what is the expected return for your retirement portfolio?
D) 9.42%
The volatility of Home Depot share prices is 20% and that of General Motors shares is 20%. When I hold both stocks in my portfolio, the overall volatility of the portfolio is ________.
D) not possible to calculate as information is inadequate
