FIN303 - CHAP 7
d
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 the total return to Ahmet from owning the stock? (Round your answer to the nearest whole percent.) A) 5% B) 44% C) 35% D) 50%
b
Babs purchased a piece of real estate last year for $85,000. The real estate is now worth $102,000. If Babs needs to have a total return of 25 percent during the year, then what is the dollar amount of income that she needed to have to reach her objective? A) $3,750 B) $4,250 C) $4,750 D) $5,250
d
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%
b
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
d
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
b
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%
b
Genaro needs to capture 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? A) $112,500 B) $125,000 C) $137,500 D) $150,000
a
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 A) 0.230967 B) -0.00002548 C) 0.00032100 D) 0.17671455
c
The return distribution for an asset is as shown in the following table. What are the missing values if the expected return is 10 percent? Return Probability 0.1 0.25 x 0.5 x 0.25 A) 0.20 B) 0.15 C) 0.10 D) None of the above
c
37. 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 a prize in the game? A) $50 B) $75 C) $80 D) $100
d
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 is 14.4 percent for Stock 1 and 15.9 percent for Stock 2. Prob Stock 1 Stock 2 0.5 0.11 0.18 0.3 0.17 0.15 0.2 0.19 0.12 A) 0.001204001 B) 0.000549003 C) -0.00271370 D) -0.971689
a
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 A) 0.000094 B) 0.00051600 C) 0.00032100 D) 0.71750786
c
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 14.4 percent for Stock 1 and 15.9 percent for Stock 2. Prob Stock 1 Stock 2 0.5 0.11 0.18 0.3 0.17 0.15 0.2 0.19 0.12 A) 0.001204001 B) 0.000549003 C) -0.00079 D) -0.3372012
c
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
a
Gwen purchased a stock one year ago for $25, and it is now worth $31. The stock paid a dividend of $1.50 during the year. What was the stock's rate of return income during the year? (Round your answer to the nearest percent.) A) 6% B) 15% C) 24% D) 26%
b
If a random variable is drawn from a normal distribution, what is the probability that the random variable is larger than 1.96 standard deviations larger than the mean? A) 1.25% B) 2.50% C) 3.75% D) 5.00%
d
If you are dealing with percentage returns, then which of the following is generally true? A) The variance of the return distribution is generally smaller than the standard deviation. B) The variance of the return distribution is generally larger than the standard deviation. C) The variance of the return distribution is measured in the same units as expected return. D) None of the above is generally true.
a
If you were to compare the returns of an individual stock to a market index, select the answer below that is most true. A) The returns of the individual stock will show more variability than those of the market index. B) The returns of the individual stock will show less variability than those of the market index. C) The returns of the individual stock will show the same level of variability than those of the market index, if they have the same beta. D) None of the above.
a
In a game of chance, the probability of winning a $50 is 40 percent and the probability of losing a $50 prize is 60 percent. What is the expected value of a prize in the game? A) -$10 B) $0 C) $10 D) $25 Ans: A
b
Julio purchased a stock one year ago for $27. The stock is now worth $32, and the total return to Julio for owning the stock was 37 percent. What is the dollar amount of dividends that he received for owning the stock during the year? A) $4 B) $5 C) $6 D) $7
d
Moshe purchased a stock for $30 last year. He found out today that he had a -100 percent return on his investment. Which of the following must be true? A) The stock is worth $30 today. B) The stock is worth $0 today C) The stock paid no dividends during the year. D) Both b and c must be true.
b
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 95 percent sure that he will have at the end of the year? A) $100,000.00 B) $104,597.50 C) $116,500.00 D) $119,402.50
a
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
b
Serox stock was selling for $20 two years ago. The stock sold for $25 one year ago, and it is currently selling for $28. Serox pays a $1.10 dividend per year. What was the rate of return for owning Serox in the most recent year? (Round to the nearest percent.) A) 12% B) 16% C) 32% D) 40%
a
The covariance of the returns between Einstein Stock and Bohr Stock is 0.0087. The standard deviation of Einstein is 0.26, and the standard deviation of Bohr is 0.37. What is the correlation coefficient between the returns of the two stocks? A) 0.090437 B) 0.096200 C) 0.90437 D) 0.96200
b
The expected return for Stock V is 24.5 percent. If we know the following information about Stock Z, then what is the probability of the Dynamite state of the world occurring? Return Probability Poor 0.15 0.2 Lukewarm 0.28 0.7 Dynamite! 0.19 ? A) 5% B) 10% C) 15% D) 20%
b
The expected return for Stock Z is 30 percent. If we know the following information about Stock Z, then what return will it produce in the Lukewarm state of the world? Return Probability Poor 0.2 0.25 Lukewarm ? 0.5 Dynamite! 0.4 0.25 A) 20% B) 30% C) 40% D) It is impossible to determine.
d
The expected return for a portfolio without borrowing A) should never be less than the expected return of the asset with lowest expected return. B) should never be greater than the expected return of the asset with highest expected return. C) may not be an event with even a positive probability of occurrence. D) All of the above.
a
The expected return for the asset below is 18.75 percent. If the return distribution for the asset is described as in the following table, what is the variance for the asset's returns? Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 A) 0.002969 B) 0.000613 C) 0.015195 D) 0.054486 Ans: A
d
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? Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 A) 0.002969 B) 0.000613 C) 0.015195 D) 0.054486
b
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. State Return Probability Weak 0.13 0.3 OK 0.2 0.4 Great 0.25 0.3 A) 0.0453 B) 0.0467 C) 0.0481 D) 0.0495
c
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 A) 12.50% B) 13.75% C) 15.75% D) 16.75%
c
Use the following table to calculate the expected return for the asset. Return Probability 0.1 0.25 0.2 0.5 0.25 0.25 A) 15.00% B) 17.50% C) 18.75% D) 20.00%
d
Which of the following investment classes had the greatest average return based on recent historical data? A) Intermediate-Term Government Bonds B) Long-Term Government Bonds C) Large U.S. Stocks D) Small U.S. Stocks
d
Which of the following investment classes had the greatest variability in returns for recent historical data? A) Intermediate-Term Government Bonds B) Long-Term Government Bonds C) Large U.S. Stocks D) Small U.S. Stocks
b
Which of the following investors should be willing to pay the highest price for an asset? A) An investor with a single-asset portfolio. B) An investor with a 50-asset portfolio. C) An investor who is not completely diversified. D) An investor who is so risk-averse that he does not recognize the benefits of diversification.
d
Which of the following is the best measure of the systematic risk in a portfolio? A) variance B) standard deviation C) covariance D) beta
b
Which of the following statements is most correct? A) The greater the risk associated with an investment, the lower the return investors expect from it. B) When choosing between two investments that have the same level of risk, investors prefer the investment with the higher return. C) If two investments have the same expected return, investors prefer the riskiest alternative. D) When choosing between two investments that have the same level of risk, investors prefer the investment with the lower return.
b
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, respectfully? A) 7.7% B) 8.2% C) 8.7% D) 9.2%
c
You have invested 40 percent of your portfolio in an investment with an expected return of 12 percent and 60 percent of your portfolio in an investment with an expected return of 20 percent. What is the expected return of your portfolio? A) 15.2% B) 16.0% C) 16.8% D) 17.6%
c
You have observed that the average size of a particular goldfish is 1.5 inches long. The standard deviation of the size of the goldfish is 0.25 inches. What is the size of a goldfish such that 95 percent of the goldfish are smaller? Assume a normal distribution for the size of goldfish. A) 1.01 inches B) 1.09 inches C) 1.91 inches D) 1.99 inches
b
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? A) 6.2% B) 12.4% C) 13.0% D) 13.6%
c
You know that the average college student eats 0.75 pounds of food at lunch. If the standard deviation of that eating is 0.2 pounds of food, then what is the total amount of food that a cafeteria should have on hand to be 95percent confident that it will not run out of food when feeding 50 college students. A) 17.90 pounds B) 21.05 pounds C) 53.95 pounds D) 57.10 pounds
