If the expected return is above the required return on an asset, rational investors will: A) Buy the asset, which will drive the price up and cause expected return to reach the required return. B) Sell the asset, which will drive the price down and cause the expected return to reach the required return. C) […]
Date: September 19th, 2020
The correlation coefficient, a measurement of the co-movement between two variables, has what range? A) From 0.0 to +10.0 B) From 0.0 to +1.0 C) From -1.0 to +10.0 D) From +1.0 to -1.0 ANSWER Answer: D
Date: September 19th, 2020
You have been asked to analyze two stocks, Stock A and Stock B. The beta of stock A is 1.2, and the beta of stock B is 0.8. The expected return on stock A is 13.5%, the expected return on stock B is 11.0% and the risk-free rate is 7%. We also know that stock […]
Date: September 19th, 2020
Correlation, a standardized measure of how stocks perform relative to one another in different states of the economy, has a range from ________. A) 0.0 to +10.0 B) 0.0 to +1.0 C) -1.0 to +1.0 D) There is no range; correlation is a calculated number that can take on any value. ANSWER Answer: […]
Date: September 19th, 2020
The EOQ model assumes constant demand and constant unit price. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Stock A B C D Expected Return 5% 5% 7% 6% Standard Deviation 10% 12% 12% 11% Which of the following statements is true? A) A is a better investment than B. B) B is a better investment than C. C) C is a better investment than D. D) D is a better investment than […]
Date: September 19th, 2020
If two investments have the same level of risk, a rational investor will choose the investment with the higher expected rate of return. Indicate whether the statement is true or false. ANSWER Answer: TRUE
Date: September 19th, 2020
What are the two investment rules identified in the text? Evaluate the validity of the following statement and justify your reasoning. “Investors do not like risk and will always choose the investment with the least risk.” What will be an ideal response? ANSWER Answer: The two rules identified by the author are: 1. […]
Date: September 19th, 2020
George is considering an investment in Parson Inc. and has gathered the information in the following table. What is the expected standard deviation for a share of the firm’s stock? State of the Economy Probability of the State Conditional Expected Return Parson Inc. Recession .25 -20% Steady .60 10% Boom .15 35 A) 17.46% B) […]
Date: September 19th, 2020
Ronnie estimates that there are three possible return outcomes for a stock he is considering for purchase. He thinks that there is a 45% chance the economy will boom and his stock will return 25%, a 50% chance the economy will continue at its current pace and the stock will return 8%, and finally, that […]
Date: September 19th, 2020
