Stocks A, B, C, and D have returns of 5%, 15%, 30%, and 110%, respectively. What is their standard deviation? A) 64.25% B) 56.75% C) 47.78% D) 32.05% ANSWER Answer: C Explanation: C) Mean return = (5% + 15% + 30% + 110%)/4 = 40%, so variance = [(5% – 40%)2 + (15% […]
Date: September 19th, 2020
Stocks A, B, C, and D have returns of 10%, 20%, 30%, and 40%, respectively. What is their variance? A) 66.67% B) 166.67% C) 4.08% D) 2.15% ANSWER Answer: B Explanation: B) Mean return = (10% + 20% + 30% + 40%)/4 = 25%, so variance = [(10% – 25%)2 + (20% – […]
Date: September 19th, 2020
Assume that the risk-free rate is 5.5% and the market risk premium is 6%. A portfolio manager has $10 million invested in a two-asset portfolio that has an (equilibrium) expected return of 12%. The manager plans to sell $3 million of Stock A with a beta of 1.6. She plans to reinvest this $3 million […]
Date: September 19th, 2020
EOQ model recommendations may be replaced by anticipatory buying during periods of high inflation. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Most stock analysts would agree that more variance is an indicator of less risk. Indicate whether the statement is true or false. ANSWER Answer: FALSE Explanation: Most stock analysts would agree that more variance is an indicator of MORE risk.
Date: September 19th, 2020
If the price of Iguana Handbags Inc. stock is $43, its required return is 20%, and the last dividend was $3, what is its dividend growth rate? (Round to the nearest tenth.) A) 12.2% B) 13.0% C) 11.7% D) 10.0% E) 17.4% ANSWER A
Date: September 19th, 2020
Safety stock may be included into the EOQ model to alleviate problems caused by violation of the assumptions of constant demand and instantaneous delivery. Indicate whether the statement is true or false ANSWER TRUE
Date: September 19th, 2020
Which of the following statements about probabilities is INCORRECT? A) The sum of all probabilities of a particular event must sum to 100%. B) Each possible outcome must have a non-negative probability. C) Probability is a statistical tool for estimating future outcomes. D) Probability is associated with an ex-post view. ANSWER Answer: D […]
Date: September 19th, 2020
Find the variance for a security that has three one-year returns of 5%, 10%, and 15%. A) 10.00% B) 16.67% C) 25.00% D) 30.00% ANSWER Answer: C Explanation: C) Average return = Σrt/n = (5% + 10% + 15%)/3 = 10% Variance(r) = Σ (ri – average)2 / (n – 1) = Σ[(5% […]
Date: September 19th, 2020
Explain how the statistical concepts of mean and standard deviation apply to the financial ideas of risk and return. What will be an ideal response? ANSWER Answer: One common definition of risk is that it is the probability of getting a return different from what you expect. Calculating an average rate of return […]
Date: September 19th, 2020
