Question;1) Which of them do you believe affect the expected rate of return of a security? Please explain why...- the state of the economy- the probability of a recession or economic boom- market rate of return given a particular economic state- the security's beta2) There are some other factors that affect beta - especially financial and operating leverage. How can you define these two concepts and its impact on beta?Multiple Choice Questions (Questions 3-10)3) The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield, are based on: (Points: 3)the largest 20 percent of the stocks traded on the NYSE.the stocks of the largest 10 percent of the publicly traded firms in the U.S.all of the stocks listed on the NYSE.the stocks of the 500 companies included in the S&P 500 index.4) If the financial markets are efficient, then: (Points: 3)stock prices should never change.stock prices should only respond to unexpected news and events.stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets.stock prices will only change when an event actually occurs, not at the time the event is anticipated.5)Which of the following factors will affect the expected rate of return on a security? Select all that apply: (Points: 4)multiple states of the economyprobability of occurrence for any one economic statemarket rate of return given a particular economic statesecurity beta6)Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate variance of this investment? (Points: 3)0.030.1517 %7) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, approximately how much would you invest in Stock A? (Points: 3)$96,000$150,000$75,000More than $200,0008) The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the beta and standard deviation of Stock I?1.2 and 24%0.6 and 12%1.2 and 12.5%Cannot be determined with the information given9) The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply:Stock II has more risk than Stock IStock II has less systematic risk than Stock IStock I has a higher risk premium than Stock IIStock I has a greater expected return than Stock II10) Which statements are true regarding risk? Select all that apply: (Points: 4)The expected return is usually the same as the actual returnA key to assessing risk is determining how much risk an investment adds to a portfolioRisks can always be decreased or mitigated by the financial managerThe higher the risk, the higher the return investors require for the investment11) What is systematic risk? Provide two or three examples. How can you diversify it?
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