I.. Multiple Choice (5 points each) 1. Asset T has a normal distribution of retu
ID: 2797916 • Letter: I
Question
I.. Multiple Choice (5 points each) 1. Asset T has a normal distribution of returns, with an expected return of 9% and a standard deviation of 5%There is a 99% probability that asset T's return will be between_ percent andpercent. A. 4, 14 C. D. -6, 24 none of the above: the correct answer is 2. Unsystematic risk A. does not change B. can be eliminated through diversification C affects all firms in a market D. all the above 3. Nico owns 100 shares of Stock X which has a price of $12 per share and 200 shares of Stock Y which has a price of $3 per share. What is the proportion of Nico's portfolio invested in stock Y? A. 33% B. 50% C. 67% D. none of the above; the correct answer is _- 4 GE Corporation's stock sells for $30 per share and has a beta of 2. Other factors being constant, if the market goes up to 10 percent, GE stock will advance to A. B. C. D. S33 $36 $60 none of the above; the correct answer is 5. Given the following expected returns and standard deviations of assets B, M, Q, and D, which asset should the prudent financial manager select? Asset Expected Return Standard Deviation 10% 16% 14% 12% 10% 9% A. Asset B B. Asset M C. Asset Q D. Asset D D PAGE 0 I0Explanation / Answer
Answer 1 Confidence Interval=Mean+standard deviation*T/12^0.5 confidence Interval= 9+ 5*3.055/12^0.5 confidence Interval= 13.41 Confidence Interval=Mean+standard deviation*T/12^0.5 confidence Interval= 9- 5*3.055/12^0.5 confidence Interval= 4.59 Correct answer is A Answer 2 Correct answer is B,Investors are capable of avoiding nonsystematic risk through diversification by forming a portfolio of assets that are not highly correlated with one another. Answer 3 Correct answer is A,33% shares price per share Total value weight weight stock X 100 12 1200 1200/1800 67% Stock Y 200 3 600 600/1800 33% 1800 Answer 4 if beta =2 if market goes up by 10% then stock will move up by 2*10=20% movement=20% 30+30*20% 30+6 36 correct answer is B Answer 5 Assume a risk free rate of 3% and compute sharpe ratio of every portfolio sharpe ratio=Expected return-Risk free rate/standard deviation Asset B sharpe ratio=10-3/5 Asset B sharpe ratio= 1.4 Asset M sharpe ratio=16-3/10 Asset M sharpe ratio= 1.3 Asset Q sharpe ratio= (14-3)/9 Asset Q sharpe ratio= 1.222 Asset D sharpe ratio (12-3)/8 Asset D sharpe ratio 1.125 since asset B has highest sharpe ratio correct answer is A