FIN3080C - Final Exam

The common stock of Air Express had annual returns of 11.7 percent, 8.8 percent, 16.7 percent, and −7.9 percent over the last four years, respectively. What is the standard deviation of these returns? A. 10.66 percent B. 11.54 percent C. 7.78 percent D. 8.29 percent

A. 10.66 percent

Suppose a stock had an initial price of $73 per share, paid a dividend of $1.42 per share during the year, and had an ending share price of $81. What was the capital gains yield? A. 10.96 percent B. 9.07 percent C. 11.67 percent D. 12.90 percent

A. 10.96 percent

Over the past four years a stock had returns of 10%, -8%, 23%, and 0%, respectively. What was the geometric average return on this stock? A. 5.63% B. 8.11% C. 6.25% D. 7.57%

A. 5.63%

You've observed the following returns on Crash-n-Burn Computer's stock over the past five years: 10 percent, 13 percent, 19 percent, −4 percent, and 15 percent. Suppose the T-bill rate was 3.1 percent. Based on this information, what was the risk premium? A. 7.5 percent B. 8.8 percent C. 6.2 percent D. 10.6 percent

A. 7.5 percent

Which of the following are examples of diversifiable risk? I. An earthquake damages an entire town II. The federal government imposes a $100 fee on all business entities III. Employment taxes increase nationally IV. All toymakers are required to improve their safety standards A. I and IV only B. I, III, and IV only C. II and IV only D. I and III only

A. I and IV only

Which of the following statements are correct concerning diversifiable risks? I. Diversifiable risks can be essentially eliminated by investing in 30 unrelated securities. II. There is no reward for accepting diversifiable risks. III. Diversifiable risks are generally associated with an individual firm or industry. IV. Beta measures diversifiable risk. A. I, II and III only B. I and III only C. I, II, III and IV D. II and IV only

A. I, II and III only

A stock with an actual return that lies above the security market line has: A. a higher return than expected for the level of risk assumed. B. more risk than that warranted by CAPM. C. more systematic risk than the overall market. D. less systematic risk than the overall market.

A. a higher return than expected for the level of risk assumed.

A stock has an expected rate of return of 9.8 percent and a standard deviation of 15.4 percent. Which one of the following best describes the probability that this stock will lose at least half of its value in any one given year? A. less than 0.005 B. greater than 0.10 C. between 0.005 and 0.025 D. between 0.025 and 0.16

A. less than 0.005

Efficient financial markets fluctuate continuously because: A. the markets are continually reacting to new information. B. current trading systems require human intervention. C. investments produce varying levels of net present values. D. the markets are continually reacting to old information as that information is absorbed.

A. the markets are continually reacting to new information.

The common stock of Alpha Manufacturers has a beta of 1.18 and an actual expected return of 13.33 percent. The risk-free rate of return is 3.3 percent and the market rate of return is 12.20 percent. Which one of the following statements is true given this information? A. The actual expected stock return will graph above the security market line; thus the stock is underpriced. B. The actual expected stock return indicates the stock is currently overpriced. C. The stock has less systematic risk than the overall market. D. To be correctly priced according to CAPM, the stock should have an expected return of 13.56 percent.

B. The actual expected stock return indicates the stock is currently overpriced.

You have $1,000,000 to invest in a stock portfolio. Your choices are Stock X with an expected return of 18 percent and Stock Y with an expected return of 10 percent. Your goal is to create a portfolio with an expected return of 13 percent. All money must be invested. How much will you invest in Stock X? A. $625,000 B. $450,000 C. $375,000 D. $500,000

C. $375,000

A portfolio has expected return of 13.2 percent and standard deviation of 18.9 percent. Assuming that the returns of the portfolio are normally distributed, what is the probability that, in any given year, the return of the portfolio will be less than -43.5 percent. A. 0.025 B. 0.01 C. 0.005 D. 0.16

C. 0.005

The common stock of Manchester & Moore is expected to earn 17 percent in a recession, 7 percent in a normal economy, and lose 8 percent in a booming economy. The probability of a boom is 15 percent while the probability of a recession is 5 percent. What is the expected rate of return on this stock? A. 4.92 percent B. 6.73 percent C. 5.25 percent D. 7.75 percent

C. 5.25 percent

A stock has a beta of 1.50 and an expected return of 15.4 percent. A risk-free asset currently earns 3.7 percent. The beta of a portfolio comprised of these two assets is .90. What percentage of the portfolio is invested in the stock? A. 90% B. 80% C. 60% D. 70%

C. 60%

Which one of the following statements best defines the efficient market hypothesis? A. Security prices in efficient markets remain steady as new information becomes available. B. All securities provide the same positive rate of return when the market is efficient. C. All securities in an efficient market are zero net present value investments. D. Efficient markets limit competition.

C. All securities in an efficient market are zero net present value investments.

Which of the following statements are true based on the historical record for 1926-2016? A. The normal distribution curve for large-company stocks is narrower than the curve for small-company stocks. B. Returns are more predictable over the short term than they are over the long term. C. Bonds are generally a safer, or less risky, investment than are stocks. D. Risk and potential reward are inversely related.

C. Bonds are generally a safer, or less risky, investment than are stocks.

Steve has invested in twelve different stocks that have a combined value today of $121,300. Fifteen percent of that total is invested in Wise Man Foods. The 15 percent is a measure of which one of the following? A. Portfolio return B. Degree of risk C. Portfolio weight D. Price-earnings ratio

C. Portfolio weight

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst? A. Strong B. Semi-Strong C. Weak D. Semi-Weak

C. Weak

What is the amount of the risk premium on a U.S. Treasury bill if the risk-free rate is 3.1 percent, the inflation rate is 2.6 percent, and the market rate of return is 7.4 percent? A. 3.1 percent B. 2.4 percent C. 0.5 percent D. 0 percent

D. 0 percent

A portfolio has average return of 13.2 percent and standard deviation of returns of 18.9 percent. Assuming that the portfolioi's returns are normally distributed, what is the probability that the portfolio's return in any given year is between -24.6 percent and 32.1 percent? A. 0.975 B. 0.950 C. 0.835 D. 0.815

D. 0.815

The common stock of Jensen Shipping has an expected return of 16.2 percent. The return on the market is 11.2 percent, the inflation rate is 3.1 percent, and the risk-free rate of return is 3.6 percent. What is the beta of this stock? A. 1.55 B. 1.33 C. 1.44 D. 1.66

D. 1.66

You own 850 shares of Western Feed Mills stock valued at $53.15 per share. What is the dividend yield if your total annual dividend income is $1,256? A. 2.13 percent B. 2.54 percent C. 1.83 percent D. 2.78 percent

D. 2.78 percent

Today, you sold 540 shares of stock and realized a total return of 6.3 percent. You purchased the shares one year ago at a price of $24 a share and have received a total of $117 in dividends. What is your capital gains yield on this investment? A. 5.92 percent B. 6.21 percent C. 6.64 percent D. 5.40 percent

D. 5.40 percent

Assume the returns from an asset are normally distributed. The average annual return for the asset is 17.4 percent and the standard deviation of the returns is 27.5 percent. What is the approximate probability that your money will double in value in a single year? A. close to 5 percent B. Close to 1 percent C. Less than 2.5 percent but greater than 5 percent D. Close to 0.5 percent

D. Close to 0.5 percent

Which one of the following is an example of systematic risk? A. A city imposes an additional one percent sales tax on all products B. A toymaker has to recall its top-selling toy C. A flood washes away a firm's warehouse D. Investors panic causing security prices around the globe to fall precipitously

D. Investors panic causing security prices around the globe to fall precipitously

Which one of the following correctly describes the dividend yield? A. This year's annual dividend divided by today's stock price B. Next year's annual dividend divided by this year's annual dividend C. This year's annual dividend divided by next year's expected stock price D. Next year's annual dividend divided by today's stock price

D. Next year's annual dividend divided by today's stock price

Assume that last year T-bills returned 2.8 percent while your investment in large-company stocks earned an average of 7.6 percent. Which one of the following terms refers to the difference between these two rates of return? A. The standard deviation B. Geometric average return C. Arithmetic average return D. Risk premium

D. Risk premium

The rate of return on which type of security is normally used as the risk-free rate of return? A. Intermediate-term corporate bonds B. Long-term corporate bonds C. The S&P 500 Stock Index D. Treasury bills

D. Treasury bills

A news flash just appeared that caused about a dozen stocks to suddenly increase in value by 12 percent. What type of risk does this news flash best represent? A. Portfolio B. Non-diversifiable C. Market D. Unsystematic

D. Unsystematic

If a stock portfolio is well diversified, then the portfolio variance: A. will equal the variance of the most volatile stock in the portfolio. B. will be the weighted average of the variances of the individual securities in the portfolio. C. must be equal to or greater than the variance of the least risky stock in the portfolio. D. may be less than the variance of the least risky stock in the portfolio.

D. may be less than the variance of the least risky stock in the portfolio.

Total risk is measured by ________ and systematic risk is measured by ________. A. alpha; beta B. beta; standard deviation C. beta; alpha D. standard deviation; beta

D. standard deviation; beta

Inside information has the least value when financial markets are: A. weak form efficient. B. semi weak form efficient. C. semistrong form efficient. D. strong form efficient.

D. strong form efficient.

A stock had returns of 14 percent, 13 percent, −10 percent, and 7 percent for the past four years. What is the 95 percent probability range of returns for this stock? A. −16.2 percent to 17.1 percent B. −27.3 percent to 39.3 percent C. −5.1 percent to 17.1 percent D. −16.2 percent to 28.2 percent

D. −16.2 percent to 28.2 percent