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COMM 308 Assignment 2 MCQs

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Question;Assignment 2Part 1 Multiple Choice Questions (21 Marks)Given the following information, what is the beta of Stock X?Month Stock X Return S&P/TSX Return January 10% 8% February 8% 12% March -5% 5% April -10% -2% May 9% 5% June 15% 10% A. 0.08B. 0.41C. 0.62D. 1.61.Label the diagram above:Time ValueUnderlying asset priceStrike priceIntrinsic value of a callPayoff/profit/option valueA. 1, 2, 3, 4, 5 respectivelyB. 5, 3, 2, 4, 1 respectivelyC. 4, 1, 2, 5, 3 respectivelyD. 5, 1, 2, 4, 3 respectively11. Which of the following factors increases the price of a put option?A. higher asset price, higher strike price, increased volatility, increased dividendsB. higher strike price, longer time to expiration, increased volatility, increased dividendsC. higher strike price, longer time to expiration, increased volatility, increased interest ratesD. longer time to expiration, increased volatility, decreasing interest rates, decreasing dividends12. XYZ shares are selling for $55.00. The 2 year put option on XYZ shares has the following characteristics:strike = 50price = $0.25Given that the risk free rate is 2%, what is the price of a 2 year call option on XYZ shares with an exercise price of 50? (round to 2 decimal places)A. 5.25B. 7.19C. -4.75D. 013. Given:asset price today $50.00asset price at expiration $60.00put strike price $50.00call strike price $50.00What is the payoff of a protective put and a covered call?A. 10, 0B. 0, 10C. 10, 20D. 20, 1014. Which of the following is not true concerning call option writers?A. Writers promise to deliver shares if exercised by the buyer.B. The writer has the option to sell shares but not an obligation.C. The writer's liability is zero if the option expires out-of-the-money.D. The writer receives a cash payment from the buyer at the time the option is purchased.E. The writer has a loss if the market price rises substantially above the exercise price.15.In the above collar position, what is the payoff if the underlying asset today is $40.00 and at expiration is $50.00.A. -10B. 10C. 20D. -30A Treasury bill rate is 6%, and the expected return on the market portfolio is 15%. On the basis of the capital asset pricing model, please answer question 16 and 17:16. What is the required return on an investment with a beta of 1.5?A. 19.5%B. 15%C. 28.5%D. 25%17. If an investment with a beta of.8 offers an expected return of 9.8%, does it have a positive NPV?A. Positive NPVB. Negative NPV18. The expected return of Security A is 12 percent with a standard deviation of 15 percent. The expected return of Security B is 9 percent with a standard deviation of 10 percent. Securities A and B have a correlation of 0.4. The market return is 11 percent with a standard deviation of 13 percent and the risk free rate is 4 percent. What is the Sharpe ratio of a portfolio if 35 percent of the portfolio is in Security A and the remainder in Security B?A. 0.54B. 0.61C. 0.86D. 1.0219. Use the following two statements to answer this question:I. The CAPM points out that rational investors should be compensated for unique risk.II. The CAPM implies that unsystematic risk is the appropriate measure of risk to determine the risk premium required by investors for holding a risky security.A. I and II are correct.B. I and II are incorrect.C. I is correct, II is incorrect.D. I is incorrect, II is correct.20. Suppose the beta of a four-asset portfolio is 1.8. The portfolio is composed of $1,500 invested in Stock W, $2,000 in Stock X, $2,500 in Stock Y, and $3,000 in Stock Z. What is the beta of Stock Z if the betas of Stock W, X, and Y are 0.7, 1.3, and 2.5, respectively?A. 0.7B. 1.1C. 1.6D. 2.121. The expected return on the market is 14 percent with a standard deviation of 18 percent and the risk free rate is 5 percent. Which of the following portfolios are underpriced?Portfolio Expected Return Beta 1 18% 1.3 2 14% 1.1 3 12% 0.7 4 8% 0.6 A. 1 and 2 onlyB. 1 and 3 onlyC. 2 and 3 onlyD. 3 and 4 only

 

Paper#48048 | Written in 18-Jul-2015

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