Risk and Return Homework Assignment
Homework ES 1. (TCO 8) The historical returns on large-company stocks, as reported by Ibbotson and Sinquefield, are based on: (Points : 3) the largest 20 percent of the stocks traded on the NYSE. the stocks of the largest 10 percent of the publicly traded firms in the U.S. all of the stocks listed on the NYSE. the stocks of the 500 companies included in the S&P 500 index.
2. (TCO 8) If the financial markets are efficient, then: (Points : 3) stock prices should never change. stock prices should only respond to unexpected news and events. stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets. stock prices will only change when an event actually occurs, not at the time the event is anticipated.
3. (TCO 8) Which of the following factors will affect the expected rate of return on a security? Select all that apply: (Points : 4) multiple states of the economy probability of occurrence for any one economic state market rate of return given a particular economic state security beta
4. (TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate variance of this investment? (Points : 3) 0.03 0.15 17% 20%
5. (TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, which of the following statements is true? (Points : 3) You would invest more in Stock A than you would invest in Stock B You would invest approximately $96,000 in Stock A and $154,000 in Stock B You would invest the same amount in each stock Regardless
2. (TCO 8) If the financial markets are efficient, then: (Points : 3) stock prices should never change. stock prices should only respond to unexpected news and events. stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets. stock prices will only change when an event actually occurs, not at the time the event is anticipated.
3. (TCO 8) Which of the following factors will affect the expected rate of return on a security? Select all that apply: (Points : 4) multiple states of the economy probability of occurrence for any one economic state market rate of return given a particular economic state security beta
4. (TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate variance of this investment? (Points : 3) 0.03 0.15 17% 20%
5. (TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, which of the following statements is true? (Points : 3) You would invest more in Stock A than you would invest in Stock B You would invest approximately $96,000 in Stock A and $154,000 in Stock B You would invest the same amount in each stock Regardless