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) […]
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 […]
The Explosive Bull Plus Fund seeks daily investment results that correspond to two times (200%) the daily performance of the S&P 500 Index. The expected return on the S&P index is 6%, and the expected return on T-Bills (the risk-free rate) is 2%. If you wanted to build a portfolio out of T-Bills and the […]
According to the random walk hypothesis, the best prediction of tomorrow’s stock price is: A) Current earnings per share. B) Today’s stock price. C) P/E ratios of other firms in the industry. D) The most recent dividend. E) Predictions by the best informed analysts. ANSWER B
In the EOQ model, the carrying cost on inventory should include the required rate of an investment in inventory. Indicate whether the statement is true or false ANSWER TRUE
If expected return is less than 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 rise. C) Sell the asset, which […]
You are considering buying a share of stock in a firm that has the following two possible payoffs with the corresponding probability of occurring. The stock has a purchase price of $50.00. You forecast that there is a 40% chance that the stock will sell for $70.00 at the end of one year. The alternative […]
When looking at the history of returns, we are taking an “ex-ante” review and when we are looking at the future of returns we are taking an “ex-post” view. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: When looking at the history of returns we are taking an “ex-post” […]
Use the information in the table to calculate the expected return and standard deviation of an equally-weighted portfolio. What will be an ideal response? ANSWER Answer: Expected Return = 7.00%; standard deviation = 0.33% Explanation: To find the expected return for an equally-weighted portfolio, first find the expected return in each state via […]
The Horizons Bear Plus Fund seeks daily expected returns that are two times (200%) the inverse (opposite) of the performance of the S&P 500 Index. If kF = 5% and E(kM) =10%, what is the Beta coefficient for the Bear Plus Fund? A) -0.5 B) -2.0 C) -4.0 D) -5.0 E) +1.0 ANSWER […]
