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Exam 9: Characterizing Risk and Return

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Question 61

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Interest rates, inflation, and economic growth are economic factors that are examples of

A) firm-specific risks that can be diversified away.
B) market risk.
C) external factors that are neither firm specific risk nor market risk.
D) None of these choices are correct.

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Question 62

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Which statement is NOT true regarding efficient portfolios?

A) Combining stocks that move together over time does not offer much risk reduction.
B) Combining stocks that do not move together provides a lot of risk reduction.
C) both a and b are NOT true
D) none of the above are NOT true

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Question 63

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Jenna receives an investment newsletter that recommends that she invest in a stock that has doubled the return of the S&P 500 in the last two months. It also claims that this stock is a "safe bet" for the future. Which of the following statements is correct regarding this information?

Which of the following is correct regarding the coefficient of variation?

Year-to-date, Oracle had earned a 12.57 percent return. During the same time period, Valero Energy earned −9.32 percent and McDonald's earned 3.45 percent. If you have a portfolio made up of 60 percent Oracle, 20 percent Valero Energy, and 20 percent McDonald's, what is your portfolio return?

Determine which one of these three portfolios dominates another. Name the dominated portfolio and the portfolio that dominates it. Portfolio Blue has an expected return of 7 percent and risk of 10 percent. The expected return and risk of portfolio Yellow are 13 percent and 10 percent; and for the Purple portfolio are 9 percent and 14 percent.

The past five monthly returns for Kohl's are 2.55 percent, −8.62 percent, −14.44 percent, −1.52 percent, and 4.75 percent. What is the average monthly return?

The past five monthly returns for PG Company are 1.25 percent, −1.50 percent, 4.25 percent, 3.75 percent, and 1.98 percent. What is the average monthly return?

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 8 percent and standard deviation of 10 percent. The average return and standard deviation of Idol Staff are 10 percent and 20 percent; and of Poker-R-Us are 6 percent and 15 percent.

At the beginning of the month, you owned $15,500 of General Motors, $4,500 of Starbucks, and $9,000 of Nike. The monthly returns for General Motors, Starbucks, and Nike were 7.10 percent, −1.36 percent, and −0.54 percent. What is your portfolio return?

Which of the following are investor diversification problems?

The following table shows your stock positions at the beginning of the year, the dividends that each stock paid during the year, and the stock prices at the end of the year. What is your portfolio percentage return? $\begin{array} { l r c c r } & & \text { Beginning of } & \text { Dividend } & \text { End of } \\\text { Company } & \text { Shares } & \text { Year Price } & \text { per Share } & \text { Year Price } \\\text { W } & 200 & \$ 45.00 & \$ 2.50 & \$ 44.00 \\\text { P } & 200 & \$ 5.00 & \$ 1.00 & \$ 5.25 \\\text { J } & 400 & \$ 20.00 & & \$ 22.00 \\\text { D } & 200 & \$ 27.00 & \$ 1.25 & \$ 27.50\end{array}$

WayCo stock was $75 per share at the end of last year. Since then, it paid a $3 per share dividend last year. The stock price is currently $70. If you owned 200 shares of WayCo, what was your percent return?

Which of the following statements is correct regarding total risk?

Which of these is the portion of total risk that is attributable to overall economic factors?