FIN 3403 Chapter 7 Exam 2

Horse Stock returns have a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042. What is the covariance of the returns? (Round your answer to six decimal places.)

0.028025

If a random variable follows a normal distribution, what is the probability that the random variable is larger than 1.96 standard deviations larger than the mean?

2.50%

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?

20%

The beta of Ricci Co.'s stock is 3.2, whereas the risk-free rate of return is 9 percent. If the expected return on the market is 18 percent, then what should investors expect as a return on on Ricci Co.?

37.80%

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. Round your answer to the nearest percent.

38%

Ahmet purchased a stock for $45 one year ago. The stock is now worth $65. During the year, the stock paid a dividend of $2.50. What is Ahmet's total return?

50%

You know that the average college student eats 0.75 pounds of food at lunch. If the standard deviation is 0.2 pounds of food, then what is the total amount of food that a cafeteria should have on hand to be 90 percent confident that it will not run out of food when feeding 50 college students?

53.95 pounds

The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Kiwi is 1.7, then what is the risk-free rate?

6.0%

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 percent, 18 percent, and 3 percent, respectively?

8.2%

Niles is making an investment with an expected return of 12 percent. If the standard deviation of the return is 4.5 percent, and if Niles is investing $100,000, then what dollar amount is Niles 90 percent sure that he will have at the end of the year? (Do not round intermediate computations.)

$104,597.50

Genaro needs a return of 40 percent for his one-year investment in a property. He believes that he can sell the property at the end of the year for $150,000 and that the property will provide him with rental income of $25,000. What is the maximum amount that Genaro should be willing to pay for the property?

$125,000

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?

$8.00

In a game of chance, the probability of winning a $50 prize is 40 percent, and the probability of winning a $100 prize is 60 percent. What is the expected value of the prize in the game?

$80

Given the distributions of returns for the following two stocks, calculate the correlation coefficient of the returns for the two stocks. Assume the expected return is 14.4 percent for Stock 1 and 15.9 percent for Stock 2. (Do not round intermediate computations.)

-0.97169

Given the distributions of returns for the following two stocks, 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

Tommie has made an investment that will generate returns that are based on 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

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? (Round your final answer to four decimal places.)

0.5556

The expected return for Stock V is 24.5 percent. If we know the following information about Stock Z, then what is the probability that the Dynamite state of the world will occur? Return Probability Poor 0.15 0.2 Lukewarm 0.28 0.7 Dynamite 0.19 ?

10%

View Point Industries has forecasted a rate of return of 20.00% if the economy booms (25.00% probability); a rate of return of 15.00% if the economy is in a growth phase (45.00% probability); a rate of return of 2.50% 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 computations. Round 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 beta 1.00 Initial expected return (rs) 10.20% Market risk premium, E(Rm - Rrf) 6.00% Percentage increase in beta 30.00% Increase in inflation premium 2.00%

12.00%

You invested $3,000 in a portfolio with an expected return of 10 percent and $2,000 in a portfolio with an expected return of 16 percent. What is the expected return of the combined portfolio?

12.4%

The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz?

13.80%

George Wilson purchased Bright Light Industries common stock for $47.50 on January 31, 2016. The firm paid dividends of $1.10 during the last 12 months. George sold the stock today (January 30, 2017) for $54.00. What is George's holding period return?

16.00%

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

18.75%

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 should investors expect as a return on Elsenore?

19.20%