Investment Management Exam Paper

stress (Easy/Medium level of difficulty) Mid marge Exam, FINE441- thole 2012 Answer KEYs argon attached in the end THIS IS THE EXAMPLE OF MULTIPLE pickax QUESTIONS. THE NUMERICAL PROBLEMS WILL BE beatized (NOT IDENTICAL) TO THE END OF CHAPTER PROBLEMS POSTED ON My Courses and Assignments 1. You purchased a share of fund for $20. One family later you received $1 as dividend and interchange the share for $29. What was your holding arrest buffet? A) 45% B) 50% C) 5% D) 40% E) n oneness of the supra practise the chase to answer questions 2-3 You have been presumption this luck distri neverthelession for the holding purpose income tax grant for XYZ computer storageState of the parsimoniousness Boom Normal growth box 2. Probability . 30 . 50 . 20 HPR 18% 12% 5% What is the anticipate holding period upshot for XYZ derivation? 3. What is the anticipate quantity aberrancy for XYZ crease of reasoning? 4. A T-bill catch up withs 6 percent browse of backtrack. Woul d essay-averse investors invest in a angry portfolio that pays 12 percent with a probability of 40 percent or 2 percent with a probability of 60 percent? A) Yes, because they are rewarded with a bump agio. B) No, because they are not rewarded with a riskiness premium. C) No, because the risk premium is sm in all. D) Cannot be rigid.E) no(prenominal) of the preceding(prenominal) 5. In the mean-standard deviation graph, which one of the sideline statements is true regarding the indifference switch off of a risk-averse investor? A) It is the locale of portfolios that have the similar evaluate casts of return and diametrical standard deviations. B) It is the locus of portfolios that have the aforementioned(prenominal) standard deviations and different sites of return. C) It is the locus of portfolios that offer the alike(p) utility match to returns and standard deviations. D) It connects portfolios that offer increasing utilities harmonise to returns and standard de viations.E) no(prenominal) of the in a higher place. 6. pick out an investor with the following utility function U = E(r) 3/2(s2). To maximize her pass judgment utility, she would film the summation with an expected rate of return of _______ and a standard deviation of ________, respectively. A) 12% 20% B) 10% 15% C) 10% 10% D) 8% 10% E) no(prenominal) of the supra Consider a godforsaken portfolio, A, with an expected rate of return of 0. 15 and a standard deviation of 0. 15, that lies on a given(p) indifference curve. Which one of the following portfolios might lie on the same indifference curve? A) E(r) = 0. 15 cadence deviation = 0. 20 B) E(r) = 0. 5 standardized deviation = 0. 10 C) E(r) = 0. 10 timeworn deviation = 0. 10 D) E(r) = 0. 20 modular deviation = 0. 15 E) E(r) = 0. 10 banal deviation = 0. 20 An investor hind end choose to invest in T-bills paying 5% or a risky portfolio with end-of-year hard currency flow of $132,000. If the investor requires a risk p remium of 5%, what would she be willing to pay for the risky portfolio? A) $100,000 B) $108,000 C) $120,000 D) $145,000 E) $147,000 7. 8. 9. You invest $100 in a risky addition with an expected rate of return of 0. 12 and a standard deviation of 0. 15 and a T-bill with a rate of return of 0. 05.What percentages of your property must be invested in the risky summation and the safe asset, respectively, to form a portfolio with an expected return of 0. 09? A) 85% and 15% B) 75% and 25% C) 67% and 33% D) 57% and 43% E) cannot be compulsive 10. Beta is the measure of A) firm ad hoc risk. B) diversifiable risk. C) merchandise risk. D) unique risk. E) none of the higher up. 11. The efficacious frontier of risky assets is A) the tidy sum of the investing opportunity set that lies above the ball-shaped minimum variableness portfolio. B) the portion of the investing opportunity set that represents the highest standard deviations.C) the portion of the enthronisation opportunity s et which includes the portfolios with the net standard deviation. D) the set of portfolios that have goose egg standard deviation. E) both A and B are true. 12. Consider devil absolutely negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. 12. 1. The weights of A and B in the global minimum disagreement portfolio are _____ and _____, respectively. A) 0. 24 0. 76 B) 0. 50 0. 50 C) 0. 57 0. 43 D) 0. 43 0. 57 E) 0. 76 0. 24 12. 2.The risk-free portfolio that can be formed with the two securities will earn _____ rate of return. A) 8. 5% B) 9. 0% C) 8. 9% D) 9. 9% E) none of the above 13. Portfolio theory as draw by Markowitz is most concerned with A) the excrement of systematic risk. B) the effect of diversification on portfolio risk. C) the identification of unsystematic risk. D) active portfolio attention to enhance returns. E) none of the above. 14. gibe to the not bad(p) Asset set Model (CAPM) a well diversified portfolios rate of return is a function of A) mart risk B) unsystematic risk C) unique risk. D) reinvestment risk.E) none of the above. 15. The risk-free rate and the expected market rate of return are 0. 06 and 0. 12, respectively. According to the capital asset pricing puzzle (CAPM), the expected rate of return on protection X with a important of 1. 2 is equal to A) 0. 06. B) 0. 144. C) 0. 12. D) 0. 132 E) 0. 18 16. Which statement is not true regarding the market portfolio? A) It includes all publicly traded financial assets. B) It lies on the economic frontier. C) All securities in the market portfolio are held in proportion to their market values. D) It is the middleman point between the capital market line and the indifference curve.E) All of the above are true. 17. Your personal opinion is that security X has an expected rate of return of 0. 11. It has a important of 1. 5. The risk-free rate is 0. 05 and the market expected rate of return is 0. 09. According to the Capital Asset Pricing Model, this security is A) undermonetary valued. B) overpriced. C) fairly priced. D) cannot be determined from data provided. E) none of the above. 18. According to the mightiness good example, co fluctuations among security pairs are A) due to the make up ones mind of a single common cipher represented by the market might return. B) extremely difficult to calculate. C) related to industry-specific events.D) ordinarily autocratic. E) A and D 19. In the single-index ensample represented by the equation ri = E(ri) + ? iF + ei, the term ei represents A) the impact of un anticipate macroeconomic events on security is return. B) the impact of unanticipated firm-specific events on security is return. C) the impact of anticipated macroeconomic events on security is return. D) the impact of anticipated firm-specific events on security is return. E) the impact of changes in the market on security is return. 20. forecast two portfolios have the same second-rate return, the same standard deviation of returns, but portfolio A has a higher beta than portfolio B.According to the Sharpe measure, the public presentation of portfolio A __________. A) is better than the capital punishment of portfolio B B) is the same as the performance of portfolio B C) is poorer than the performance of portfolio B D) cannot be measured as there is no data on the alpha of the portfolio E) none of the above is true. 21. An merchandise opportunity exists if an investor can construct a __________ investment portfolio that will yield a sure profit. A) positive B) negative C) zero D) all of the above E) none of the above 22. Consider the one-factor APT. The variance of returns on the factor portfolio is 6%.The beta of a well-diversified portfolio on the factor is 1. 1. The variance of returns on the well-diversified portfolio is approximately __________. A) 3. 6% B) 6. 0% C) 7. 3% D) 10. 1 % E) none of the above 23. Consider the single factor APT. Portfolio A has a beta of 0. 2 and an expected return of 13%. Portfolio B has a beta of 0. 4 and an expected return of 15%. The riskfree rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short military strength in portfolio _________ and a long bunk in portfolio _________. A) A, A B) A, B C) B, A D) B, B E) none of the above 4. You sold short 300 shares of common channel at $55 per share. The initial brim is 60%. At what stock price would you receive a margin name if the guardianship margin is 35%? A. $51. 00 B. $65. 18 C. $35. 22 D. $40. 36 E. none of the above 25. You purchased 1000 shares of CSCO common stock on margin at $19 per share. Assume the initial margin is 50% and the maintenance margin is 30%. Below what stock price level would you get a margin call? Assume the stock pays no dividend ignore interest on margin A. $12. 86 B. $15. 75 C. $19. 67 D. $13. 57 U = E(r) (A/2)s2, where A = 4. . 26. establish on the utility function above, which investment would you select? A. 1 B. 2 C. 3 D. 4 E. cannot tell from the information given 27. Analysts may use reasoning backward psychoanalysis to rate the index determine for a stock. When doing so, the slope of the regression line is an estimate of ______________. A. the ? of the asset B. the ? of the asset C. the ? of the asset D. the ? of the asset E. the ? of the asset 28. Analysts may use regression analysis to estimate the index model for a stock. When doing so, the intercept of the regression line is an estimate of ______________.A. the ? of the asset B. the ? of the asset C. the ? of the asset D. the ? of the asset E. the ? of the asset 29. The index model for stock A has been estimated with the following event RA= 0. 01 + 0. 9RM+ eA If ? M= 0. 25 and R2A= 0. 25, the standard deviation of return of stock A is _________. A. 0. 2025 B. 0. 2500 C. 0. 4500 D. 0. 8100 E. 0. 5460 Answer keys for the Sample Midterm, Fall 2012, FINE441. 1. 2. 3. 4. 5. 6. 7. 8. 9. 10. 11. 12. 1 12. 2 13. B 14. A 15. D 16. D 17. C 18. E 19. B 20. B 21. C 22. C 23. C 24. B 25. D 26. C 27. B 28. A 29. C B C E B C C C C D C A D C