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Exam 7: Risk and Return

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Question 31

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The covariance of the returns between Stock A and Stock B is 0.0087. The standard deviation of Stock A is 0.26, and the standard deviation of Stock B is 0.37. What is the correlation coefficient between the returns of the two stocks?

A) 0.090437
B) 0.096200
C) 0.90437
D) 0.96200

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Question 32

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The coefficient of variation is useful when deciding which individual stocks to add to your diversified portfolio.

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Question 33

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View Point Industries has forecast a rate of return of 20.00% if the economy booms (25.00% probability) ; a rate of return of 15.00% if the economy is in a growth phase (45.00% probability) ; a rate of return of 2.50% if the economy is in decline (20.00% probability) ; and a rate of return of -15.00% if the economy is in a depression (10.00% probability) . What is View Point's standard deviation of returns? Do not round intermediate computations. Round your final answer to two decimal points.

The risk-free rate of return is currently 3 percent, whereas the market risk premium is 6 percent. If the beta of Lenz, Inc., stock is 1.8, then what is the expected return on Lenz?

The expected return on Mike's Seafood stock is 17.9 percent. If the expected return on the market is 13 percent and the beta for Kiwi is 1.7, then what is the risk-free rate?

The rate of return that investors require for an investment depends on the risk associated with that investment.

You have observed that the average size of a particular goldfish is 1.5 inches long. The standard deviation of the size of the goldfish is 0.25 inches. What is the size of a goldfish such that 90 percent of the goldfish are smaller from such size? Assume a normal distribution for the size of goldfish. Round your final answer to two decimal places.

Horse Stock returns have exhibited a standard deviation of 0.57, whereas Mod T Stock returns have a standard deviation of 0.63. The correlation coefficient between the returns is 0.078042. What is the covariance of the returns? Round your answer to six decimal places.

If the price of an asset has not increased or decreased since the original purchase of the asset, then the total return of the asset (if no dividends were paid during the period) is equal to the capital appreciation component return.

Given the historical information in the chapter, the beta of a small stock should be greater than the beta of a corporate bond.

Which of the following is the best measure of the systematic risk in a portfolio?

Gunther earned a 62.5 percent return on a stock that he purchased one year ago. The stock is now worth $12, and he received a dividend of $1 during the year. How much did Gunther originally pay for the stock?

Niles is making an investment with an expected return of 12 percent. If the standard deviation of the return is 4.5 percent, and if Niles is investing $100,000, then what dollar amount is Niles 90 percent sure that he will have at the end of the year? (Do not round intermediate computations) .

Utilizing the fact that values of two or more assets do not always move in the same direction at the same time in order to reduce the risk of a portfolio is called diversification.

Robert paid $100 for a stock one year ago. The total return on the stock was 10 percent. Therefore, the stock must be selling for $110 today.

Genaro needs to capture a return of 40 percent for his one-year investment in a property. He believes that he can sell the property at the end of the year for $150,000 and that the property will provide him with rental income of $25,000. What is the maximum amount that Genaro should be willing to pay for the property?

If a random variable follows a normal distribution, what is the probability that the random variable is larger than 1.96 standard deviations larger than the mean?

In order to keep the total return of a stock equal to 100 percent, the income component for that stock must be zero.

You have invested 40 percent of your portfolio in an investment with an expected return of 12 percent and 60 percent of your portfolio in an investment with an expected return of 20 percent. What is the expected return of your portfolio?

Julio purchased a stock one year ago for $27. The stock is now worth $32, and the total return to Julio for owning the stock was 37 percent. What is the dollar amount of dividends that he received for owning the stock during the year? Round your final answer to nearest whole dollar.