Homework 4 Finance

What is the variance of the returns on a portfolio that is invested 40 percent in Stock S and 60 percent in Stock T? Probability of State of State of ROR Economy Economy If state Occurs Stock S Stock T Boom .06 .22 .18 Normal .92 .15 .14 Bust .02 −.26 .09 0.00091 0.00073 0.00118 0.00176

0.00091

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. 0.005 0.025 0.01 0.16

0.005

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? 0.815 0.975 0.950 0.835

0.815

Assume a project has cash flows of -$291,300, $108,200, $237,380, and $114,700 for years 0 to 3, respectively. What is the profitability index given a required return of 9.2 percent? 1.33 0.33 1.17 0.17 1.84

1.33

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? 1.66 1.55 1.44 1.33

1.66

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? Group of answer choices 10.66 percent 7.78 percent 11.54 percent 8.29 percent

10.66%

What is the expected return on this portfolio? Stock Expected Number Price Return of shares per share A .11 200 $18.60 B .06 400 $12.85 C .17 300 $43.90 13.42 percent 11.48 percent 12.03 percent 11.91 percent

13.42%

A project has profitability index of 1.79 and requires an initial investment of $2,822,000. Calculate the net present value of the project. Group of answer choices 2229380 5051380 1576536 1245464 4398536

2,229,380

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? 2.78 percent 2.13 percent 2.54 percent 1.83 percent

2.78%

A project has the cash flows given in the table below. The project has required rate of return of 12.8 percent and Net Present Value (NPV) of $227,800.88. Calculate the project's internal rate of return (IRR). Year Cash Flow 0 Not Given 1 $146,000 2 $146,000 3 $253,000 4 $253,000 5 $253,000 28.39 percent 22.61 percent 16.91 percent 13.48 percent 17.19 percent

28.39%

An investment project provides cash inflows of $3,760 per year for eight years. What is the project's payback period if the initial cost is $$13,300? 3.54 years 3.46 years 4.83 years 6.21 years 4.69 years

3.54 years

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? $375,000 $500,000 $625,000 $450,000

375,000

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? 5.25% 7.75% 6.73% 4.92%

5.25%

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? 5.40 percent 6.64 percent 5.92 percent 6.21 percent

5.4%

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? 5.63% 6.25% 7.57% 8.11%

5.63%

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? 60% 70% 80% 90%

60%

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? 7.5 percent 10.6 percent 6.2 percent 8.8 percent

7.5%

Consider the following information on three stocks: State of Economy Probability of State of Economy Rate of Return if State Occurs Stock A Stock B Stock C Boom .25 .27 .15 .11 Normal .65 .14 .11 .09 Bust .10 −.19 −.04 .05 A portfolio is invested 45 percent each in Stock A and Stock B and 10 percent in Stock C. What is the expected risk premium on the portfolio if the expected T-bill rate is 4.1 percent? 7.81% 11.47% 12.74% 8.71%

7.81%

What is the expected return of an equally weighted portfolio comprised of the following three stocks? Probability of state of State of eco eco Stock A Stock B Stock C Boom .25 .19 .13 .07 Normal .55 .15 .05 .13 Bust .20 − .29 − .14 .22 7.90 percent 9.82 percent 9.48 percent 10.37 percent 8.30 percent

7.90%

Which one of the following stocks is correctly priced if the risk-free rate of return is 2.84 percent and the market rate of return is 10.63 percent? Stock Beta Expected Return A .93 .0892 B 1.18 .1203 C 1.47 .1540 D 1.02 .1006 E 1.26 .1187

B

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. I, II and III only I and III only II and IV only I, II, III and IV

I,II and III only

ComFoods Inc. has identified the following two mutually exclusive projects: Year Cash Flow (A) Cash Flow (B) 0 -$43,500 -$43,500 1 21,600 6,300 2 20,500 15,200 3 15,900 23,700 4 7,700 27,600 If the required return of each project is 11 percent, which of the projects should the company choose? Project B because it has the higher NPV Project A because it has the higher IRR Project B because it has the higher IRR Project A because it has the higher NPV

Project B because it has the higher NPV

Which form of market efficiency would most likely offer the greatest profit potential to an outstanding professional stock analyst? Weak Strong Semi-strong semi-weak

Weak

Total risk is measured by ________ and systematic risk is measured by ________. Group of answer choices B) standard deviation; beta beta; alpha beta; standard deviation alpha; beta

standard deviation; beta

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? −16.2 percent to 28.2 percent −5.1 percent to 17.1 percent −27.3 percent to 39.3 percent −16.2 percent to 17.1 percent

−16.2 percent to 28.2 percent