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Exam 10: Capital Markets and the Pricing of Risk

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Question 31

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Use the table for the question(s) below. Consider the following average annual returns: -What is the excess return for the portfolio of small stocks?

A) 10.0%
B) 15.7%
C) 18.4%
D) 17.0%

E) All of the above
F) A) and D)

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Question 32

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The excess return if the difference between the average return on a security and the average return for

A) Treasury Bonds.
B) a portfolio of securities with similar risk.
C) a broad based market portfolio like the S&P 500 index.
D) Treasury Bills.

E) C) and D)
F) A) and B)

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Question 33

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Use the following information to answer the question(s) below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. -The risk-free rate is closest to:

Use the following information to answer the question(s) below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. -The beta for security "Y" is closest to:

Suppose an investment is equally likely to have a 35% return or a -20% return.The standard deviation on the return for this investment is closest to:

Which of the following statements is false?

Use the table for the question(s) below. Consider the following average annual returns: -What is the excess return for corporate bonds?

Use the information for the question(s) below. Suppose that in the coming year, you expect Exxon-Mobil stick to have a volatility of 42% and a beta of 0.9, and Merck's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the markets expected return is 12%. -Which stock has the highest total risk?

Which of the following is not a diversifiable risk?

Which of the following statements is false?

Use the following information to answer the question(s) below. -If the expected return on the market is 11% and the expected return of investing in Merck is 10.35%,then the risk-free rate must be:

Which of the following statements is false?

Use the table for the question(s) below. Consider the following Price and Dividend data for General Electric Company: -Assume that you purchased Ford Motor Company stock at the closing price on December 31,2008 and sold it at the closing price on December 30,2009.Your realized annual return for the year 2009 is closest to:

Which of the following statements is false?

Use the table for the question(s) below. Consider the following realized annual returns: -Suppose that you want to use the 10 year historical average return on the Index to forecast the expected future return on the Index.The standard error of your estimate of the expect return is closest to:

Which of the following types of risk doesn't belong?

Use the table for the question(s) below. Consider the following realized annual returns: -The standard deviation of the returns on Stock A from 2000 to 2009 is closest to:

The cost of capital for a project with the same beta as Exxon Mobil's stock is closest to:

Suppose an investment is equally likely to have a 35% return or a - 20% return.The variance on the return for this investment is closest to:

The standard deviation of Little Cure's average net income for their ten new drugs is closest to: