Question 1

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.
A)Rail Haul, Poker-R-Us, Idol Staff
B)Idol Staff, Rail Haul, Poker-R-Us
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Poker-R-Us, Rail Haul

Accepted Answer

The answer of Rank the following three stocks by their...

Question 2

The past five monthly returns for PG Company are 3.25 percent, -1.45 percent, 4.35 percent, 6.49 percent, and 3.75 percent. What is the average monthly return?
A)1.366 percent
B)1.608 percent
C)3.278 percent
D)3.858 percent

Accepted Answer

To find the average monthly return, we need to add up all the monthly returns and divide by the number of returns. 
(3.25 - 1.45 + 4.35 + 6.49 + 3.75) / 5 = 3.278 percent 
Therefore, the answer is choice C.

Question 3

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 13 percent and risk of 17 percent. The expected return and risk of portfolio Yellow are 15 percent and 19 percent, and for the Purple portfolio are 12 percent and 18 percent.
A)Portfolio Blue dominates portfolio Yellow
B)Portfolio Blue dominates portfolio Purple
C)Portfolio Purple dominates portfolio Blue
D)Portfolio Purple dominates portfolio Yellow

Accepted Answer

Portfolio Blue dominates portfolio Purple because it has a higher expected return (13% vs. 12%) with a lower level of risk (17% vs. 18%). Neither Blue nor Purple dominates Yellow, as Yellow has a higher expected return but also a higher level of risk. Therefore, Blue is the best choice as it provides a higher return relative to its risk compared to the other portfolios.

Question 4

Year to date, Company Y had earned a 10.8 percent return. During the same time period, Company R earned 12.20 percent and Company C earned -1.56 percent. If you have a portfolio made up of 45 percent Y, 35 percent R, and 20 percent C, what is your portfolio return?
A)7.15 percent
B)8.19 percent
C)8.82 percent
D)9.44 percent

Accepted Answer

The answer of Year to date, Company Y had earned...

Question 5

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?
A)-6.67 percent
B)-2.67 percent
C)4.00 percent
D)4.29 percent

Accepted Answer

The answer of WayCo stock was $75 per share at...

Question 6

Year to date, Company Y had earned a 7 percent return. During the same time period, Company R earned 9.25 percent and Company C earned -2.25 percent. If you have a portfolio made up of 35 percent Y, 40 percent R, and 25 percent C, what is your portfolio return?
A)4.6667 percent
B)6.1667 percent
C)5.5875 percent
D)12.6625 percent

Accepted Answer

The portfolio return can be calculated by multiplying each company's return by its respective weight in the portfolio and then summing these products. For Company Y: 0.35 * 7% = 2.45% For Company R: 0.40 * 9.25% = 3.70% For Company C: 0.25 * (-2.25%) = -0.5625% Adding these together: 2.45% + 3.70% - 0.5625% = 5.5875%

Question 7

Rx Corp. stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend last year. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return?
A)1.67 percent
B)4.17 percent
C)5.60 percent
D)5.83 percent

Accepted Answer

First, let's calculate the total amount of dividends received:
Total dividends = $1.00/share × 400 shares = $400

Next, let's calculate the capital gain (increase in stock price) per share:
Capital gain per share = Current stock price - Initial stock price - Dividends per share
Capital gain per share = $62.50/share - $60.00/share - $1.00/share = $1.50/share

Finally, let's calculate the total capital gain:
Total capital gain = Capital gain per share × Number of shares
Total capital gain = $1.50/share × 400 shares = $600

The total return is the sum of the capital gain and dividends received:
Total return = Total capital gain + Total dividends
Total return = $600 + $400 = $1000

To calculate the percentage return, we divide the total return by the initial investment and multiply by 100:
Percentage return = (Total return / Initial investment) × 100%
Percentage return = ($1000 / ($60.00/share × 400 shares)) × 100%
Percentage return = 5.83%

Therefore, the correct answer is D) 5.83 percent.

Question 8

Rank the following three stocks by their risk-return relationship, best to worst. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent.
A)Rail Haul, Idol Staff, Poker-R-Us
B)Idol Staff, Poker-R-Us, Rail Haul
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Rail Haul, Poker-R-Us

Accepted Answer

The answer of Rank the following three stocks by their...

Question 9

Year-to-date, Company O had earned a -2.10 percent return. During the same time period, Company V earned 8.00 percent and Company M earned 6.25 percent. If you have a portfolio made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is your portfolio return?
A)3.435 percent
B)5.115 percent
C)12.15 percent
D)16.35 percent

Accepted Answer

The portfolio return can be calculated by multiplying each company's return by its respective weight in the portfolio and then summing these products. For Company O: $0.40 \times (-2.10\%) = -0.84\%$, for Company V: $0.30 \times 8.00\% = 2.40\%$, and for Company M: $0.30 \times 6.25\% = 1.875\%$. Adding these together gives $-0.84\% + 2.40\% + 1.875\% = 3.435\%$.

Question 10

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.
A)Portfolio Blue dominates portfolio Yellow
B)Portfolio Yellow dominates portfolio Blue
C)Portfolio Purple dominates portfolio Blue
D)Portfolio Purple dominates portfolio Yellow

Accepted Answer

Portfolio Yellow dominates Portfolio Blue because it has a higher expected return with the same level of risk. Portfolio Purple does not dominate either of the other two portfolios as it has a higher level of risk without a proportionate increase in expected return.

Question 11

An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?
A)Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
B)Adobe System = 0.2, Dow Chemical = 0.3, Office Depot = 0.5
C)Adobe System = 0.3, Dow Chemical = 0.2, Office Depot = 0.5
D)Adobe System = 0.2667, Dow Chemical = 0.3333, Office Depot = 0.4

Accepted Answer

To find the portfolio weights, divide the value of each stock by the total value of the portfolio:
Adobe Systems: $10,000 / ($10,000 + $15,000 + $25,000) = 0.2
Dow Chemical: $15,000 / ($10,000 + $15,000 + $25,000) = 0.3
Office Depot: $25,000 / ($10,000 + $15,000 + $25,000) = 0.5
Thus, the portfolio weights of each stock are 0.2, 0.3, and 0.5, respectively. Choice B is the correct answer.

Question 12

The past five monthly returns for K and Company are 2.28 percent, 2.64 percent, -1.05 percent, 4.25 percent, and 9.25 percent. What is the average monthly return?
A)1.45 percent
B)1.62 percent
C)3.47 percent
D)3.89 percent

Accepted Answer

The average monthly return is calculated by summing all the monthly returns and then dividing by the number of months. So, (2.28 + 2.64 - 1.05 + 4.25 + 9.25) / 5 = 17.47 / 5 = 3.47 percent.

Question 13

Rank the following three stocks by their risk-return relationship, best to worst. 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.
A)Rail Haul, Idol Staff, Poker-R-Us
B)Idol Staff, Rail Haul, Poker-R-Us
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Poker-R-Us, Rail Haul

Accepted Answer

The risk-return relationship can be assessed by comparing the ratio of average return to standard deviation for each stock. A higher ratio indicates a better risk-return tradeoff. For Rail Haul, the ratio is 0.8 (8%/10%); for Idol Staff, it's 0.5 (10%/20%); and for Poker-R-Us, it's 0.4 (6%/15%). Thus, Rail Haul offers the best risk-return relationship, followed by Idol Staff, and then Poker-R-Us.

Question 14

Noble stock was $60.00 per share at the end of last year. Since then, it paid a $2.00 per share dividend last year. The stock price is currently $58. If you owned 400 shares of Noble, what was your percent return?
A)-3.33 percent
B)0 percent
C)3.33 percent
D)3.45 percent

Accepted Answer

The answer of Noble stock was $60.00 per share at...

Question 15

An investor owns $2,000 of Adobe Systems stock, $4,000 of Dow Chemical, and $6,000 of Office Depot. What are the portfolio weights of each stock?
A)Adobe System = 0.3333, Dow Chemical = 0.3333, Office Depot = 0.3333
B)Adobe System = 0.1667, Dow Chemical = 0.3333, Office Depot = 0.5
C)Adobe System = 0.3333, Dow Chemical = 0.1667, Office Depot = 0.5
D)Adobe System = 0.2, Dow Chemical = 0.4, Office Depot = 0.6

Accepted Answer

To find the portfolio weights, we need to divide the amount of investment in each stock by the total investment:
Adobe Systems: $2,000 / ($2,000 + $4,000 + $6,000) = 0.1667
Dow Chemical: $4,000 / ($2,000 + $4,000 + $6,000) = 0.3333
Office Depot: $6,000 / ($2,000 + $4,000 + $6,000) = 0.5
Therefore, the portfolio weights are 0.1667 for Adobe Systems, 0.3333 for Dow Chemical, and 0.5 for Office Depot. Choice B is the best answer.

Question 16

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 14 percent and risk of 19 percent. The expected return and risk of portfolio Yellow are 15 percent and 18 percent, and for the Purple portfolio are 16 percent and 21 percent.
A)Portfolio Blue dominates portfolio Yellow
B)Portfolio Yellow dominates portfolio Blue
C)Portfolio Purple dominates portfolio Blue
D)Portfolio Purple dominates portfolio Yellow

Accepted Answer

Portfolio Yellow dominates Portfolio Blue because it has a higher expected return and lower risk. Portfolio Purple is not dominating any other portfolio as it has a higher risk than both Portfolio Blue and Portfolio Yellow. Therefore, Portfolio Yellow is the best choice as it has the highest expected return for a given level of risk.

Question 17

Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 10 percent and standard deviation of 15 percent. The average return and standard deviation of Idol Staff are 15 percent and 25 percent; and of Poker-R-Us are 12 percent and 35 percent.
A)Rail Haul, Poker-R-Us, Idol Staff
B)Idol Staff, Poker-R-Us, Rail Haul
C)Poker-R-Us, Idol Staff, Rail Haul
D)Idol Staff, Rail Haul, Poker-R-Us

Accepted Answer

Total risk is typically measured by the standard deviation of returns. The higher the standard deviation, the higher the total risk. Poker-R-Us has the highest standard deviation (35%), followed by Idol Staff (25%), and then Rail Haul (15%).

Question 18

The standard deviation of the past five monthly returns for K and Company are 4.25 percent, 4.13 percent, -2.05 percent, 3.25 percent, and 7.75 percent. What is the standard deviation?
A)1.40 percent
B)3.37 percent
C)3.53 percent
D)16.83 percent

Accepted Answer

To calculate the overall standard deviation, we use the formula √[(Σ(xi- μ)²)/n], where xi is the individual returns, μ is the mean return, and n is the number of returns.

First, we need to find the mean return:

(4.25% + 4.13% - 2.05% + 3.25% + 7.75%) / 5 = 3.45%

Next, we calculate the squared deviations from the mean for each return:

(4.25% - 3.45%)² = 0.66%
(4.13% - 3.45%)² = 0.47%
(-2.05% - 3.45%)² = 30.17%
(3.25% - 3.45%)² = 0.04%
(7.75% - 3.45%)² = 13.81%

Then, we add up these squared deviations:

0.66% + 0.47% + 30.17% + 0.04% + 13.81% = 45.15%

Finally, we divide by the number of returns and take the square root:

√(45.15% / 5) = 3.53%

Therefore, the standard deviation is 3.53%.

Question 19

The past five monthly returns for K and Company are 4.25 percent, 4.13 percent, -2.05 percent, 3.25 percent, and 7.25 percent. What is the average monthly return?
A)1.403 percent
B)1.744 percent
C)3.366 percent
D)4.186 percent

Accepted Answer

The average monthly return is calculated by summing all the monthly returns and then dividing by the number of months. So, (4.25 + 4.13 - 2.05 + 3.25 + 7.25) / 5 = 16.83 / 5 = 3.366 percent.

Question 20

TechNo stock was $25 per share at the end of last year. Since then, it paid a $1.50 per share dividend last year. The stock price is currently $23. If you owned 300 shares of TechNo, what was your percent return?
A)-2 percent
B)-8 percent
C)6 percent
D)6.5 percent

Accepted Answer

The answer of TechNo stock was $25 per share at...

Quiz 9: Characterizing Risk and 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.

The past five monthly returns for PG Company are 3.25 percent, -1.45 percent, 4.35 percent, 6.49 percent, and 3.75 percent. What is the average monthly return?

Year to date, Company Y had earned a 10.8 percent return. During the same time period, Company R earned 12.20 percent and Company C earned -1.56 percent. If you have a portfolio made up of 45 percent Y, 35 percent R, and 20 percent C, what is your portfolio return?

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?

Year to date, Company Y had earned a 7 percent return. During the same time period, Company R earned 9.25 percent and Company C earned -2.25 percent. If you have a portfolio made up of 35 percent Y, 40 percent R, and 25 percent C, what is your portfolio return?

Rx Corp. stock was $60.00 per share at the end of last year. Since then, it paid a $1.00 per share dividend last year. The stock price is currently $62.50. If you owned 400 shares of Rx, what was your percent return?

Year-to-date, Company O had earned a -2.10 percent return. During the same time period, Company V earned 8.00 percent and Company M earned 6.25 percent. If you have a portfolio made up of 40 percent Company O, 30 percent Company V, and 30 percent Company M, what is your portfolio return?

An investor owns $10,000 of Adobe Systems stock, $15,000 of Dow Chemical, and $25,000 of Office Depot. What are the portfolio weights of each stock?

The past five monthly returns for K and Company are 2.28 percent, 2.64 percent, -1.05 percent, 4.25 percent, and 9.25 percent. What is the average monthly return?

Rank the following three stocks by their risk-return relationship, best to worst. 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.

Noble stock was $60.00 per share at the end of last year. Since then, it paid a $2.00 per share dividend last year. The stock price is currently $58. If you owned 400 shares of Noble, what was your percent return?

An investor owns $2,000 of Adobe Systems stock, $4,000 of Dow Chemical, and $6,000 of Office Depot. What are the portfolio weights of each stock?

The standard deviation of the past five monthly returns for K and Company are 4.25 percent, 4.13 percent, -2.05 percent, 3.25 percent, and 7.75 percent. What is the standard deviation?

The past five monthly returns for K and Company are 4.25 percent, 4.13 percent, -2.05 percent, 3.25 percent, and 7.25 percent. What is the average monthly return?

TechNo stock was $25 per share at the end of last year. Since then, it paid a $1.50 per share dividend last year. The stock price is currently $23. If you owned 300 shares of TechNo, what was your percent return?