Question 1

Total Risk 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.

Accepted Answer

Total risk is measured by the standard deviation. Idol Staff has the highest standard deviation (20%), followed by Poker-R-Us (15%), and Rail Haul (10%).

Question 2

Average Return 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?

Accepted Answer

To find the average monthly return, we add up the five monthly returns and divide by the total number of returns (in this case, five):

(3.25% - 1.45% + 4.35% + 6.49% + 3.75%) / 5 = 3.278%

Therefore, the average monthly return for PG Company is 3.278 percent, which is closest to answer choice C.

Question 3

Investment 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?

Accepted Answer

The answer of Investment Return TechNo stock was $25 per...

Question 4

Portfolio Weights 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?

Accepted Answer

The total investment is $12,000 ($2,000 + $4,000 + $6,000). The portfolio weights are calculated by dividing each stock's value by the total investment: Adobe Systems = $2,000/$12,000 = 0.1667, Dow Chemical = $4,000/$12,000 = 0.3333, Office Depot = $6,000/$12,000 = 0.5.

Question 5

Risk versus Return 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.

Accepted Answer

Rail Haul has the lowest standard deviation (15%) and a decent average return (10%). Idol Staff has a higher average return (15%) but also a higher standard deviation (25%). Poker-R-Us has the highest average return (12%) but also the highest standard deviation (35%). Therefore, Rail Haul is the best option, followed by Idol Staff and then Poker-R-Us.

Question 6

Average Return 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?

Accepted Answer

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

Question 7

Portfolio Weights 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?

Accepted Answer

The total investment is $50,000. The weights are calculated as follows: Adobe Systems = $10,000/$50,000 = 0.2, Dow Chemical = $15,000/$50,000 = 0.3, Office Depot = $25,000/$50,000 = 0.5.

Question 8

Portfolio 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?

Accepted Answer

To calculate your portfolio return, you need to multiply the weighting of each company by their respective returns and then add them up.

Portfolio Return = (Weighting of Y x Return of Y) + (Weighting of R x Return of R) + (Weighting of C x Return of C)

Plugging in the numbers, we get:

Portfolio Return = (0.45 x 10.8%) + (0.35 x 12.2%) + (0.20 x -1.56%)
Portfolio Return = 4.86% + 4.27% - 0.31%
Portfolio Return = 8.82%

Therefore, the answer is C) 8.82 percent.

Question 9

Dominant Portfolios 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.

Accepted Answer

Portfolio Yellow dominates portfolio Blue because it has a higher expected return with the same level of risk. Portfolio Purple cannot dominate either Blue or Yellow because it has a higher level of risk and either a lower or equal level of expected return compared to the other portfolios.

Question 10

Standard Deviation 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?

Accepted Answer

To find the standard deviation, first calculate the mean of the returns, then find the squared deviations from the mean, average those squared deviations, and finally take the square root of that average. The correct calculation results in a standard deviation of approximately 3.53 percent.

Question 11

Investment 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?

Accepted Answer

To calculate the percent return, we need to consider both the change in stock price and any dividends received.

The change in stock price is: 
(62.50 - 60.00) / 60.00 = 0.0417 or 4.17%

The dividend received is: 
400 shares x 1.00 dividend per share = $400

To calculate the percent return, we need to add the change in stock price and the dividend received, then divide by the original stock price: 
(0.0417 + 400) / 60.00 = 0.0583 or 5.83%

Therefore, the correct answer is D) 5.83 percent.

Question 12

Risk versus 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.

Accepted Answer

The risk-return relationship is evaluated by comparing the return per unit of risk (standard deviation). Rail Haul has the highest return-to-risk ratio (0.8), followed by Idol Staff (0.5), and Poker-R-Us (0.4).

Question 13

Investment Return 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?

Accepted Answer

The answer of Investment Return Noble stock was $60.00 per...

Question 14

Investment 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?

Accepted Answer

To calculate the percent return, we need to add the dividend received to the current price of the stock, and then subtract the initial price of the stock.

Total return = (Dividend + Current Price) - Initial Price
Total return = ($3 + $70) - $75
Total return = $73 - $75
Total return = -$2

Since the return is negative, this means that you lost money on your investment. To calculate the percent return, we divide the total return by the initial investment, and then multiply by 100:

Percent return = (Total return / Initial Investment) x 100
Percent return = (-$2 / ($75 x 200)) x 100
Percent return = -0.011 x 100
Percent return = -1.1%

Therefore, the correct answer is B) -2.67 percent.

Question 15

Dominant Portfolios 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.

Accepted Answer

Portfolio Yellow dominates portfolio Blue because it has a higher expected return (15% vs. 14%) and lower risk (18% vs. 19%).

Question 16

Total Risk 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.

Accepted Answer

Total risk is measured by the standard deviation. Poker-R-Us has the highest standard deviation (35%), followed by Idol Staff (25%), and then Rail Haul (15%). Therefore, the correct answer is C: Poker-R-Us, Idol Staff, Rail Haul.

Question 17

Dominant Portfolios 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.

Accepted Answer

Portfolio Blue has a higher expected return (13%) and lower risk (17%) compared to Portfolio Purple, which has a lower expected return (12%) and higher risk (18%). Therefore, Portfolio Blue dominates Portfolio Purple.

Question 18

Portfolio 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?

Accepted Answer

The answer of Portfolio Return Year to date,Company Y had...

Question 19

Portfolio 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?

Accepted Answer

The portfolio return is calculated by multiplying each company's return by its portfolio weight and summing the results: (0.40 * -2.10) + (0.30 * 8.00) + (0.30 * 6.25) = -0.84 + 2.40 + 1.875 = 3.435 percent.

Question 20

Average Return 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?

Accepted Answer

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

Quiz 9: Characterizing Risk and Return