Chapter 12 Finance 3716 Math Only
A portfolio has three stocks - 110 shares of Yahoo (YHOO), 210 Shares of General Motors (GM), and 70 shares of Standard and Poor's 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. A. 10.6%, 13.5% B. 9.9%, 25.7% C. 13.5%, 24.4% D. 14.2%, 27.1%
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? A. 19.17% B. 18.16% C. 22.20% D. 20.18%
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? A. 19.45% B. 27.96% C. 34.04% D. 24.31%
D. 24.31%
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 Lowers in your portfolio is _____. A. 40.44% B. 21.78% C. 49.78% D. 31.11%
D. 31.11%
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? A. 8.48% B. 154.10% C. 9.89% D. 9.42%
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 that portfolio is _____. A. 20% B. 16% C. 18% D. not possible to calculate as information is inadequate
D. not possible to calculate as information is inadequate
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 B) $117,300 C) $110,400 D) $151,800
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 B) $157,250 C) $175,750 D) $203,500
A) $185,000
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 B) 0.84 C) 1.03 D) 0.98
A) 0.93
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 B) 1.20 C) 1.35 D) 1.25
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% B) 10.4% C) 12.0% D) 13.1%
A) 10.9%
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% B) 62.0% C) 61.3% D) 79%
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% B) 8% C) 4% D) 9.1%
A) 7%
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% B) 10.23 % C) 9.25% D) 9.55
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. B) Fordʹs beta appears to be negative. C) Fordʹs beta appears to be zero. D) Beta has nothing to do with the relationship seen in this scatterplot.
A) Fordʹs beta appears to be positive.
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%. B) Stock A is 37.5% and Stock B is 62.5%. C) Stock A is 50% and Stock B is 50%. D) Stock A is 200% and Stock B is 100%.
A) Stock A is 62.5% and Stock B is 37.5%.
You expect General Motors (GM) to have a beta of 1.5 over the next year and the beta of Exxon Mobil (XOM) to be 1.9 over the next year. Also, you expect the volatility of General Motors to be 50% and that of Exxon Mobil to be 35% over the next year. Which stock has more systematic risk? Which stock has more total risk? A) XOM, GM B) GM, XOM C) GM, GM D) XOM, XOM
A) XOM, GM
For each 1% change in the market portfolioʹs excess return, the investmentʹs excess return is expected to change by ________ due to risks that it has in common with the market. A) beta B) alpha C) 0% D) 1%
A) beta
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% B. 12.25% C. -10.50% D. -5.20%
A. -1.54%
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% B. 28.01%, 8.38% C. 23.18%, 11.43% D. 22.22%, 13.71%
A. 19.32%, 7.62%
A portfolio has three stocks - 240 shares of Yahoo (YHOO), 150 Shares of General Motors (GM), and 40 shares of Standard and Poor's 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% B. 23.4%, 49.3% C. 12.8%, 16.0% D. 40.5%, 28.0%
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% B. 39.11% C. 29.33% D. 19.56%
A. 48.89%
Your retirement portfolio comprises 100 shares of the Standard & Poor's 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% B. 10.06% C. 7.43% D. 7.87%
A. 8.74%
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? A) $43,200 B) $48,000 C) $55,200 D) $52,800
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? A) $10,615.38 B) $8846.15 C) $6153.85 D) $5307.69
B) $8846.15
A linear regression was done to estimate the relation between Sprintʹs stock returns and the marketʹs return. The intercept of the line was found to be 0.23 and the slope was 1.47. Which of the following statements is true regarding Sprintʹs stock? A) Sprintʹs beta is 0.23. B) Sprintʹs beta is 1.47. C) The risk-free rate is 1.47%. D) The standard deviation of Sprintʹs excess returns is 23%.
B) Sprintʹs beta is 1.47.
A linear regression to estimate the relation between General Motorsʹ stock returns and the marketʹs return gives the best fitting line that represents the relation between the stock and the market. The slope of this line is our estimate of ________. A) alpha B) beta C) risk-free rate D) volatility
B) beta
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 ________. A) more than 25% B) less than 50% C) more than 50% D) less than 25%
B) less than 50%
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. A. 21.53%, 14.67% B. 22.67%, 16.30% C. 24.93%, 18.75% D. 22.21%, 18.26%
B. 22.67%, 16.30%
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? A. 23.61% B. 27.78% C. 31.95% D. 30.56%
B. 27.78%
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? A. 12.77% B. 8.51% C. 9.37% D. 10.22%
B. 8.51%
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? A) 0.9 B) 0.95 C) 1.00 D) 1.10
C) 1.00
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? A) 12.2% B) 12.9% C) 13.6% D) 14.3%
C) 13.6%
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? A) 14.8% B) 15.6% C) 16.4% D) 17.2%
C) 16.4%
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? A) 14.96 % B) 15.79 % C) 16.62% D) 18.28 %
C) 16.62%
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? A) AT&Tʹs beta is negative. B) AT&Tʹs beta is zero. C) AT&Tʹs beta is positive. D) Cannot be determined from information given.
C) AT&Tʹs beta is positive.
You expect General Motors (GM) to have a beta of 1 over the next year and the beta of Exxon Mobil (XOM) to be 1.2 over the next year. Also, you expect the volatility of General Motors to be 30% and that of Exxon Mobil to be 40% over the next year. Which stock has more systematic risk? Which stock has more total risk? A) GM, GM B) GM, XOM C) XOM, XOM D) XOM, GM
C) XOM, XOM
15) 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. A) between 10% and 12% B) between 14% and 16% C) between 5% and 7% D) between 11% and 13%
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 ________. A) more than 15% B) less than 30% C) unchanged at 30% D) equal to 15%
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 ________. A) more than 30% B) unchanged at 30% C) zero D) equal to 60%
C) zero
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 _____. A. $21,916 B. $19,828 C. $20,872 D. $22,959
C. $20,872
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? A. 9.73% B. 8.65% C. 10.81% D. 10.27%
C. 10.81%
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 over year 1 and year 2? Assume no dividends are paid. A. 13.06%, 14.84% B. 10.31%, 18.96% C. 13.75%, 16.48% D. 11.69%, 19.78%
C. 13.75%, 16.48%
Suppose you invest in 110 shares of Merck (NRK) 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 at $22 per share, what is the return on your portfolio? A. 7.70% B. 4.11% C. 2.57% D. 3.47%
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 _____. A. 50.00% B. 40.00% C. 20.00% D. 30.00%
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 Poor's 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. A. 11.1%, 20.0% B. 16.7%, 28.3% C. 22.2%, 33.3% D. 22.2%, 43.3%
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 _____. A. 0% B. 7.6% C. 3.8% D. 5.7%
C. 3.8%
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 ________. A) -18% B) -10% C) -23% D) -26%
D) -26%
The beta of the market portfolio is ________. A) 0 B) -1 C) 2 D) 1
D) 1
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? A) 10.4% B) 11.7% C) 13.1% D) 13.8%
D) 13.8%
You expect General Motors (GM) to have a beta of 1.3 over the next year and the beta of Exxon Mobil (XOM) to be 0.9 over the next year. Also, you expect the volatility of General Motors to be 40% and that of Exxon Mobil to be 30% over the next year. Which stock has more systematic risk? Which stock has more total risk? A) XOM, GM B) XOM, XOM C) GM, XOM D) GM, GM
D) GM, GM
As we add more uncorrelated stocks to a portfolio where the stocks are held in equal weights, the benefit of diversification is most dramatic ________. A) after 20 stocks have been added B) when there are more than 500 stocks C) when there are more than 1,000 stocks D) at the outset
D) at the outset
