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La Trobe University FIN 3IPM 1)You put up $100 at the beginning of the year for an investment

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La Trobe University

FIN 3IPM

1)You put up $100 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was  .

Select one: a. 7.00%

b. 3.50%

c. 11.00%

 

d. 7.50%

2.            The arithmetic average of −15%, 11% and 22% is               . Select one:

a. 11.22%

b. 15.67%

 

c. 6%

d. 8%

3.            Your investment has a 30% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 20% chance of losing 3%. What is the standard deviation of this investment?

Select one: a. 9.29%

b. 6.33%

c. 8.43%

d. 5.14%

4.            The        measure of returns ignores compounding. Select one:

a.            arithmetic average

b.            internal rate of return (IRR)

c.             geometric average

d.            dollar-weighted

 

5.            Both investors and gamblers take on risk. The difference between an investor and a gambler is that an investor               .

Select one:

a.            is normally risk neutral

 

b.            requires a risk premium to take on the risk

c.             knows he or she will not lose money

d.            knows the outcomes at the beginning of the holding period

6.            Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return of 10% and a standard deviation of return of 40%. The weight of Security B in the minimum variance portfolio is              .

Select one: a. 20%

b. 40%

 

c. 33.33%

d. 10%

7.            Which of the following statistics cannot be negative? Select one:

a.            Correlation coefficient

 

b.            standard deviation

c.             Covariance

d.            E[r]

8.            You put half of your money in a share portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The share and bond portfolio have a correlation 0.55. The standard deviation of the resulting portfolio will be .

Select one:

a.            equal to 12%

b.            equal to 18%

c.             more than 18% but less than 24%

 

d.            more than 12% but less than 18%

 

9.            Between 1986 and 1996, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.03, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators?

Select one: a. 0.1

b. 0.3

c. 0.1322

d. 0.1258

10.          Diversification is most effective when security returns are           . Select one:

a.            high

 

b.            negatively correlated

c.             positively correlated

d.            uncorrelated

11.          The term excess-return refers to             . Select one:

a.            returns earned illegally by means of insider trading

b.            the difference between the rate of return earned on a particular security and the rate of return earned on other securities of equivalent risk

c.             the portion of the return on a security which represents tax liability and therefore cannot be reinvested

 

d.            the difference between the rate of return earned and the risk-free rate

12.          A share has a correlation with the market of 0.45. The standard deviation of the market is 15% and the standard deviation of the share is 35%. What is the share's beta?

Select one:

 

a. 1.05

b. 1.00

c. 0.55

d. 0.75

 

13.          Decreasing the number of shares in a portfolio from 50 to 10 would likely             . Select one:

a.            increase the unsystematic risk of the portfolio

b.            increase the return of the portfolio

c.             decrease the variation in returns the investor faces in any one year

d.            increase the systematic risk of the portfolio

14.          Asset A has an expected return of 20% and a standard deviation of 35%. The risk-free rate is 10%. What is the Sharpe ratio?

Select one: a. 0.80

b. 0.75

c. 0.40

 

d. 0.2857

15.          An investor's degree of risk aversion will determine their             . Select one:

a.            optimal risky portfolio

b.            capital allocation line

c.             risk-free rate

 

d.            optimal mix of the risk-free asset and risky asset