A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance between Stock X and Stock Y is 0.10. The standard deviation of Stock X is 0.50, and the standard deviation of Stock Y is 0.50. Which of the following comes closest to the variance of the portfolio?

Select one:

a.

0.42

b.

1.00

c.

0.60

d.

0.18

e.

0.55

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The beta of Southeast has been estimated to be 0.85. Which of the following statements about Southeast is FALSE?

Select one:

a. The sign of the covariance between Southeast and the market is greater than zero.

b. If the market rises by 1%, Southeast would be expected to rise by 1.85%.

c. If the market falls by 1%, Southeast would be expected to fall by 0.85%.

d. The covariance between Southeast and the market divided by the variance of the market is equal to 0.85.

e. Southeast is considered to be less risky compared to the market.

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Mike Flannery holds the following portfolio:

Stock		Investment		Beta
A		$150,000		1.40
B		$10,000		0.80
C		$140,000		1.00
D		$75,000		1.20
Total		$375,000

What is the portfolio’s beta? Do not round your intermediate calculations.

Select one:

a. 1.47

b. 1.19

c. 1.30

d. 1.36

e. 1.45

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Taggart Inc.’s stock has a 50% chance of producing a 36% return, a 30% chance of producing a 10% return, and a 20% chance of producing a -28% return. What is the firm’s expected rate of return? Do not round your intermediate calculations.

Select one:

a. 14.01%

b. 15.40%

c. 12.01%

d. 15.86%

e. 15.71%

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Over the past 89 years, we have observed that investments with the highest average annual returns also tend to have the highest standard deviations of annual returns. This observation supports the notion that there is a positive correlation between risk and return. Which of the following answers correctly ranks investments from highest to lowest risk (and return), where the security with the highest risk is shown first, the one with the lowest risk last?

Select one:

a. U.S. Treasury bills, long-term government bonds, long-term corporate bonds, small-company stocks, large-company stocks.

b. Small-company stocks, long-term corporate bonds, large-company stocks, long-term government bonds, U.S. Treasury bills.

c. Large-company stocks, small-company stocks, long-term corporate bonds, U.S. Treasury bills, long-term government bonds.

d. Small-company stocks, large-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills.

e. Large-company stocks, small-company stocks, long-term corporate bonds, long-term government bonds, U.S. Treasury bills.

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Roenfeld Corp believes the following probability distribution exists for its stock. What is the coefficient of variation on the company’s stock? Do not round your intermediate calculations.

State of the Economy		Probability of State Occurring		Stock’s Expected Return
Boom		0.19		25%
Normal		0.50		15%
Recession		0.31		5%

Select one:

a. 0.6060

b. 0.6565

c. 0.4545

d. 0.4292

e. 0.5050

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Consider the following information and then calculate the required rate of return for the Global Investment Fund, which holds 4 stocks. The market’s required rate of return is 17.50%, the risk-free rate is 3.00%, and the Fund’s assets are as follows (Do not round your intermediate calculations.):

Stock		Investment		Beta
A		$ 200,000		1.50
B		300,000		-0.50
C		500,000		1.25
D		$1,000,000		0.75

Select one:

a. 15.46%

b. 14.76%

c. 13.35%

d. 15.18%

e. 14.06%

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Tom Noel holds the following portfolio:

Stock		Investment		Beta
A		$150,000		1.40
B		$50,000		0.80
C		$100,000		1.00
D		$75,000		1.20
Total		$375,000

Tom plans to sell Stock A and replace it with Stock E, which has a beta of 0.80. By how much will the portfolio beta change? Do not round your intermediate calculations.

Select one:

a. -0.240

b. -0.230

c. -0.194

d. -0.271

e. -0.290

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Stock X has a beta of 0.7 and Stock Y has a beta of 1.3. The standard deviation of each stock’s returns is 20%. The stocks’ returns are independent of each other, i.e., the correlation coefficient, r, between them is zero. Portfolio P consists of 50% X and 50% Y. Given this information, which of the following statements is CORRECT?

Select one:

a. Portfolio P has the same required return as the market (rM).

b. Portfolio P has a standard deviation of 20%.

c. Portfolio P has a beta of 0.7.

d. The required return on Portfolio P is equal to the market risk premium (rM- rRF).

e. Portfolio P has a beta of 1.0 and a required return that is equal to the riskless rate, rRF.

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A portfolio is comprised of equal weights of two stocks labeled Stock X and Stock Y. The covariance between Stock X and Stock Y is 0.10. The standard deviation of Stock X is 0.50, and the standard deviation of Stock Y is 0.50. Which of the following comes closest to the correlation coefficient between Stock X and Stock Y?

Select one:

a. 0.40

b. 1.00

c. 0.60

d. 0.00

e. 0.50