Question 1

Your retirement portfolio comprises 200 shares of the S&P 500 fund (SPY)and 100 shares of iShares Barclays Aggregate Bond Fund (AGG).The price of SPY is $130 and that of AGG is $ 105.If you expect the return on SPY to be 9% in the next year and the return on AGG to be 7%,what is the expected return for your retirement portfolio?

Accepted Answer

D

Question 2

Use the information for the question(s)below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share.
-The weight of Lowes in your portfolio is:

Accepted Answer

D

Question 3

Your retirement portfolio comprises 300 shares of the S&P 500 fund (SPY)and 100 shares of iShares Barclays Aggregate Bond Fund (AGG).The price of SPY is $140 and that of AGG is $ 95.If you expect the return on SPY to be 15% in the next year and the return on AGG to be 8%,what is the expected return for your retirement portfolio?

Accepted Answer

The expected return on the retirement portfolio can be calculated as follows:

Expected return = (Weight of SPY × Expected return on SPY) + (Weight of AGG × Expected return on AGG)

Weight of SPY = 300/(300+100) = 0.75 or 75%
Weight of AGG = 100/(300+100) = 0.25 or 25%

Expected return on SPY = 15%
Expected return on AGG = 8%

Expected return = (0.75 x 15%) + (0.25 x 8%) = 11.25% + 2% = 13.25%

Therefore, the expected return for your retirement portfolio is 13.25%, which is closest to option C (13.71%).

Question 4

A portfolio has three stocks - 300 shares of Yahoo (YHOO),300 Shares of General Motors (GM),and 100 shares of Standard and Poor's Index Fund (SPY).If the price of YHOO is $20,the price of GM is $30,and the price of SPY is $150,calculate the portfolio weight of YHOO and GM.

Accepted Answer

The total value of the portfolio is (300*$20) + (300*$30) + (100*$150) = $6000 + $9000 + $15000 = $30000. The weight of YHOO is $6000/$30000 = 20%, and the weight of GM is $9000/$30000 = 30%.

Question 5

Use the information for the question(s)below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share.
-The weight of Abbott Labs in your portfolio is:

Accepted Answer

To calculate the weight of Abbott Labs in the portfolio, we need to first calculate the total value of the portfolio invested in each company. 
Investment in Abbott Labs = 200 x $50 = $10,000 
Investment in Lowes = 200 x $30 = $6,000 
Investment in Ball Corporation = 100 x $40 = $4,000

Total investment in the portfolio = $10,000 + $6,000 + $4,000 = $20,000

Therefore, the weight of Abbott Labs in the portfolio is the percentage of the total investment that is in Abbott Labs. 
Weight of Abbott Labs = ($10,000 ÷ $20,000) x 100% = 50%.

As for the best choice(s), it's subjective and dependent on the investment strategy, risk tolerance, and market conditions. It's always recommended to consult with a financial advisor for personalized guidance.

Question 6

A portfolio has three stocks - 100 shares of Yahoo (YHOO),200 Shares of General Motors (GM),and 50 shares of Standard and Poor's Index Fund (SPY).If the price of YHOO is $20,the price of GM is $20,and the price of SPY is $130,calculate the portfolio weight of YHOO and GM.

Accepted Answer

To calculate the portfolio weight for each stock, we need to find the total value of the portfolio and then divide each stock's value by the total value.

Total value of the portfolio:

Value of YHOO = 100 shares x $20/share = $2,000
Value of GM = 200 shares x $20/share = $4,000
Value of SPY = 50 shares x $130/share = $6,500

Total value of the portfolio = $2,000 + $4,000 + $6,500 = $12,500

Portfolio weight of YHOO:

Value of YHOO / Total value of the portfolio = $2,000 / $12,500 = 0.16 or 16%

Portfolio weight of GM:

Value of GM / Total value of the portfolio = $4,000 / $12,500 = 0.32 or 32%

Therefore, the portfolio weight of YHOO is 16% and the portfolio weight of GM is 32%, which is only given in choice D.

Question 7

The price of Microsoft is $40 per share and that of Apple is $45 per share.The price of Microsoft increases to $45 per share after one year and to $50 after two years.Also,shares of Apple increase to $50 after one year and to $60 after two years.If your portfolio comprises 100 shares of each security,what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

Accepted Answer

The return for year 1 is calculated as the percentage increase in the portfolio value from the initial investment. For Microsoft, the increase is from $40 to $45, and for Apple, from $45 to $50. The total initial investment is $8,500, and the value after year 1 is $9,500, resulting in a return of 11.76%. For year 2, the value increases to $11,000, resulting in a return of 15.79%.

Question 8

The price of Microsoft is $35 per share and that of Apple is $60 per share.The price of Microsoft increases to $37 per share after one year and to $40 after two years.Also,shares of Apple increase to $65 after one year and to $70 after two years.If your portfolio comprises 100 shares of each security,what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

Accepted Answer

The correct answer is A because the portfolio return in year 1 is (37-35+65-60)/((35+60)/2) = 7.37% and the portfolio return in year 2 is (40-37+70-65)/((37+65)/2) = 7.84%.

Question 9

Suppose you invest in 100 shares of Harley-Davidson at $40 per share and 200 shares of Yahoo at $25 per share.If the price of Harley-Davidson increases to $50 and the price of Yahoo decreases to $20 per share,what is the return on your portfolio?

Accepted Answer

The answer of Suppose you invest in 100 shares of...

Question 10

For large portfolios,investors should expect a higher return for higher volatility,but this does not hold true for individual stocks.

Accepted Answer

For large portfolios, diversification reduces unsystematic risk, allowing the relationship between higher risk (volatility) and higher expected return to hold. However, for individual stocks, higher volatility does not necessarily mean higher expected returns due to the presence of unsystematic risk that can be diversified away.

Question 11

Which of the following equations is INCORRECT?

Accepted Answer

The answer of Which of the following equations is INCORRECT?
...

Question 12

Suppose you invest in 200 shares of Johnson and Johnson at $70 per share and 200 shares of Yahoo at $20 per share.If the price of Johnson and Johnson increases to $80 and the price of Yahoo decreases to $18 per share,what is the return on your portfolio?

Accepted Answer

The answer of Suppose you invest in 200 shares of...

Question 13

A portfolio comprises two stocks,A and B,with equal amounts of money invested in each.If stock A's stock price increases and that of stock B decreases,the weight of stock A in the portfolio will increase.

Accepted Answer

As the stock price of A increases, the total value of the portfolio will increase. Since the portfolio has equal investments in both stocks, the increase in value will result in a higher weight for stock A. On the other hand, the decrease in stock B's price will result in a lower weight for stock B. Therefore, the weight of stock A in the portfolio will increase.

Question 14

Use the information for the question(s)below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share.
-The weight of Ball Corporation in your portfolio is:

Accepted Answer

To calculate the weight of Ball Corporation in the portfolio, we need to first calculate the total value of the portfolio. 
Total value = (200 x $50) + (200 x $30) + (100 x $40) = $10,000 + $6,000 + $4,000 = $20,000

Now, we need to calculate the value of Ball Corporation in the portfolio. 
Value of Ball Corporation = 100 x $40 = $4,000

The weight of Ball Corporation in the portfolio can be calculated as: 
= (Value of Ball Corporation / Total value) x 100 
= ($4,000 / $20,000) x 100 
= 20%

So, the best choice is option C, which correctly identifies the weight of Ball Corporation in the portfolio as 20%.

Question 15

Suppose you invest in 100 shares of Merck at $40 per share and 100 shares of Yahoo at $25 per share.If the price of Merck increases to $45 and the price of Yahoo decreases to $22 per share,what is the return on your portfolio?

Accepted Answer

First, let's calculate the initial investment in each stock:
100 shares of Merck at $40 per share = $4,000
100 shares of Yahoo at $25 per share = $2,500

After the price changes, the value of each stock is:
100 shares of Merck at $45 per share = $4,500
100 shares of Yahoo at $22 per share = $2,200

The total value of the portfolio is now $6,700 ($4,500 + $2,200). The initial investment was $6,500 ($4,000 + $2,500).

Therefore, the return on the portfolio is:
($6,700 - $6,500) / $6,500 = 3.08%

So the answer is C) 3.08%.

Question 16

Which of the following statements is FALSE?

Accepted Answer

Without trading, the portfolio weights will remain the same and only change with external factors such as price changes or influx of money. The weights of the stocks in the portfolio do not decrease simply based on their returns relative to the overall portfolio return.

Question 17

A portfolio has three stocks - 200 shares of Yahoo (YHOO),100 Shares of General Motors (GM),and 50 shares of Standard and Poor's Index Fund (SPY).If the price of YHOO is $30,the price of GM is $30,and the price of SPY is $130,calculate the portfolio weight of YHOO and GM.

Accepted Answer

The total value of the portfolio is:
(200 shares of YHOO) x ($30 per share) + (100 shares of GM) x ($30 per share) + (50 shares of SPY) x ($130 per share) = $6,000 + $3,000 + $6,500 = $15,500

The weight of YHOO in the portfolio is:
(200 shares of YHOO) x ($30 per share) / $15,500 = 0.387 = 38.7%

The weight of GM in the portfolio is:
(100 shares of GM) x ($30 per share) / $15,500 = 0.194 = 19.4%

Therefore, the correct answer is A, with YHOO having a portfolio weight of 38.7% and GM having a portfolio weight of 19.4%.

Question 18

Your retirement portfolio comprises 100 shares of the Standard & Poor's 500 fund (SPY)and 100 shares of iShares Barclays Aggregate Bond Fund (AGG).The price of SPY is $120 and that of AGG is $98.If you expect the return on SPY to be 10% in the next year and the return on AGG to be 5%,what is the expected return for your retirement portfolio?

Accepted Answer

The expected return is calculated by finding the weighted average of the returns of the two investments. The total value of the portfolio is (100 * $120) + (100 * $98) = $21,800. The weight of SPY is ($12,000 / $21,800) and the weight of AGG is ($9,800 / $21,800). The expected return is (weight of SPY * 10%) + (weight of AGG * 5%) = 7.75%.

Question 19

Stocks have both diversifiable risk and undiversifiable risk,but only diversifiable risk is rewarded with higher expected returns.

Accepted Answer

Both diversifiable risk and undiversifiable risk are not rewarded with higher expected returns. Only exposure to undiversifiable risk (market risk) is rewarded with higher expected returns, as it cannot be eliminated through diversification. Diversifiable risk can be eliminated through diversifying across different stocks or sectors, and therefore does not command higher expected returns.

Question 20

The price of Microsoft is $30 per share and that of Apple is $50 per share.The price of Microsoft increases to $35 per share after one year and to $40 after two years.Also,shares of Apple increase to $60 after one year and to $70 after two years.If your portfolio comprises 100 shares of each security,what is your portfolio return in year 1 and year 2? Assume no dividends are paid.

Accepted Answer

The portfolio return for year 1 is calculated as the percentage increase in the total value of the portfolio from the initial year to the end of year 1. For Microsoft, the increase is from $30 to $35, and for Apple, from $50 to $60. The total initial value is $8000, and the value at the end of year 1 is $9500, giving a return of 18.75%. For year 2, the value increases from $9500 to $11000, giving a return of 15.79%.

Quiz 12: Systematic Risk and the Equity Risk Premium

Use the information for the question(s) below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share,200 shares of Lowes (LOW) at $30 per share,and 100 shares of Ball Corporation (BLL) at $40 per share. -The weight of Lowes in your portfolio is:

A portfolio has three stocks - 300 shares of Yahoo (YHOO) ,300 Shares of General Motors (GM) ,and 100 shares of Standard and Poor's Index Fund (SPY) .If the price of YHOO is $20,the price of GM is $30,and the price of SPY is $150,calculate the portfolio weight of YHOO and GM.

Use the information for the question(s) below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share,200 shares of Lowes (LOW) at $30 per share,and 100 shares of Ball Corporation (BLL) at $40 per share. -The weight of Abbott Labs in your portfolio is:

A portfolio has three stocks - 100 shares of Yahoo (YHOO) ,200 Shares of General Motors (GM) ,and 50 shares of Standard and Poor's Index Fund (SPY) .If the price of YHOO is $20,the price of GM is $20,and the price of SPY is $130,calculate the portfolio weight of YHOO and GM.