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Question;Introduction to Risk and Return;1. Which of;the following portfolios have the least risk? A. A portfolio of Treasury bills;b. A;portfolio of long-term United States Government bonds;c. Portfolio;of U.S. common stocks of small firms;d. None of;the above;2. If the;average annual rate of return for common stocks is 11.7%, and for treasury;bills it is 4.0%, what is the market risk premium?;a. 15.8%;b. 4.1%;C. 7.7%;d. None of;the above;3. Spill Oil;Company's stocks had -8%, 11% and 24% rates of return during the last three;years respectively, calculate the average rate of return for the stock.;a. 8% per;year;B. 9% per year;c. 11% per;year;d. None of;the above;4. Given the;following data: risk-free rate = 4%, average risk premium = 7.7%. Calculate the;required rate of return;a. 5.6%;b. 7.6%;C. 11.7%;d. None of;the given answers;5. Mega;Corporation has the following returns for the past three years: 8%, 12% and;10%. Calculate the variance of the return and the standard deviation of the;returns.;a. 64 and 8%;b. 124 and;11.1%;C. 4 and 2%;d. None of;the above;6. Macro;Corporation has had the following returns for the past three years, -10%, 10%;and 30%. Calculate the standard deviation of the returns.;a. 10%;B. 20%;c. 30%;d. None of;the above;53;Junjie Liu ? Econ 282 Practice;Multiple Choice;7. Sun;Corporation has had returns of -6%, 16%, 18%, and 28% for the past four years.;Calculate the standard deviation of the returns.;a. 11.6% B. 14.3% c. 13.4 %;d. None of the above;8. A;statistical measure of the degree to which securities' returns move together is;called: a. Variance;B. Correlation Coefficient c. Standard Deviation;d. None of the above;9. The type;of the risk that can be eliminated by diversification is called: a. Market risk;B. Unique risk;c. Interest rate risk d. Default risk;10. The unique risk is also called the;a. Unsystematic;risk;b. Diversifiable;risk;c. Firm;specific risk D. All of the above;11. Market;risk is also called: I) Systematic risk, II) Undiversifiable risk, III) Firm;specific risk.;a. I only;b. II only;c. III only;D. I and II only;12. Stock A;has an expected return of 10% per year and stock B has an expected return of;20%. If 40% of the funds are invested in stock A, and the rest in stock B, what;is the expected return on the portfolio of stock A and stock B?;a. 10%;b. 20%;C. 16%;d. None of;the above;13. As the;number of stocks in a portfolio is increased: A. Unique risk decreases and;approaches to zero;b. Market;risk decreases;c. Unique;risk decreases and becomes equal to market risk;d. Total;risk approaches to zero;54;Junjie Liu ? Econ 282 Practice;Multiple Choice;14. Stock M and Stock N have had the following returns for;the past three years of -12%. 10%, 32%, and 15%, 6%, 24% respectively.;Calculate the covariance between the two securities. a. -99;B. +99 c. +250;d. None of the above;15. Stock P and stock Q have had annual returns of -10%;12%, 28% and 8%, 13%, 24% respectively. Calculate the covariance of return;between the securities.;a. -149 B. +149 c. 100;d. None of the above;16. Stock X has a standard deviation of return of 10%. Stock;Y has a standard deviation of return of 20%. The correlation coefficient;between stocks is 0.5. If you invest 60% of the funds in stock X and 40% in;stock Y, what is the standard deviation of a portfolio?;a. 10% b. 20% C. 12.2%;d. None of;the above;17. If the;correlation coefficient between stock C and stock D is +1.0% and the standard;deviation of return for stock C is 15% and that for stock D is 30%, calculate;the covariance between stock C and stock D.;a. +45;b. -450;C. +450;d. None of the above;18. The range;of values that correlation coefficients can take can be;a. Zero to;+1 B. -1 to +1;c. -infinity;to +infinity;d. Zero to;+infinity;19. If the;covariance between stock A and stock B is 100, the standard deviation of stock;A is 10% and that of stock B is 20%, calculate the correlation coefficient;between the two securities.;a. -0.5;b. +1.0;C. +0.5;d. None of the above;55;Junjie Liu ? Econ 282 Practice;Multiple Choice;20. For a;two-stock portfolio, the maximum reduction in risk occurs when the correlation;coefficient between the two stocks is;a. +1;b. -0.5;C. -1;d. 0;21. In the;case of a portfolio of N-stocks, the formula for portfolio variance contains;A. N variance terms;b. N(N -;1)/2 variance terms;c. N2;variance terms;d. None of;the above;22. In the;case of a portfolio of N-stocks, the formula for portfolio variance contains;a. N;covariance terms;B. N(N - 1)/2 covariance terms;c. N2;covariance terms;d. None of;the above;23. The;beta" is a measure of;a. Unique;risk;b. Total;risk C. Market risk;d. None of;the above;24. The beta;of market portfolio is: A. + 1.0;b. +0.5;c. 0;d. -1.0;25. For each;additional 1% change in the market return, Amazon stock return on the average;changes by;a. 1.26%;b. 1.59%;C. 2.2%;d. None of;the above;26. The beta;of Nestle measured relative to its home market is: A. 0.17;b. 1.54;c. 1.01;d. None of;the above;56;Junjie Liu ? Econ 282 Practice;Multiple Choice;27. If the;standard deviation of returns of the market is 20% and the beta of a;well-diversified portfolio is 1.5, calculate the standard deviation of the;portfolio;A. 30%;b. 20%;c. 10%;d. None of;the above;28. The;correlation coefficient between stock A and the market portfolio is +0.6. The;standard deviation of return of the stock is 30% and that of the market;portfolio is 20%. Calculate the beta of the stock.;a. 1.1;b. 1.0;C. 0.9;d. 0.6;29. Historical;nominal return for stock A is -8%, +10% and +22%. The nominal return for the;market portfolio is +6%, +18% and 24%. Calculate the beta for stock A.;A. 1.64;b. 0.61;c. 1.0;d. None of;the above;30. The annual;return for three years for stock B comes out to be 0%, 10% and 26%. Annual;returns for three years for the market portfolios are +6%, 18%, 24%. Calculate;the beta for the stock.;a. 0.74;B. 1.36;c. 1.0;d. None of;the above;31. The;correlation coefficient between stock B and the market portfolio is 0.8. The;standard deviation of the stock B is 35% and that of the market is 20%.;Calculate the beta of the stock.;a. 1.0;B. 1.4;c. 0.8;d. 0.7

 

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