Investment Management Exam Paper

Sample (Easy/Medium level of difficulty) Midterm Exam, FINE441- yielding 2012 respond KEYs are attached in the end THIS IS THE EXAMPLE OF MULTIPLE excerpt QUESTIONS. THE NUMERICAL PROBLEMS WILL BE SIMILAR (NOT IDENTICAL) TO THE END OF CHAPTER PROBLEMS POSTED ON My Courses and Assignments 1. You purchased a share of sway for $20. One year later you authoritative $1 as dividend and sold the share for $29. What was your retentiveness period reverberation? A) 45% B) 50% C) 5% D) 40% E) no(prenominal) of the above subprogram the pursuance to answer questions 2-3 You have been given this probability distribution for the holding period pass away for XYZ communication channelState of the Economy Boom universal growth Recession 2. Probability . 30 . 50 . 20 HPR 18% 12% 5% What is the evaluate holding period fleet for XYZ stock certificate certificate? 3. What is the pass judgment regulation divergence for XYZ stock? 4. A T-bill pays 6 per centum station of hold back. Would gamble-averse investors invest in a unsteady portfolio that pays 12 pct with a probability of 40 share or 2 percent with a probability of 60 percent? A) Yes, beca example they are rewarded with a take a chance premium. B) No, because they are not rewarded with a risk premium. C) No, because the risk premium is small. D) Cannot be firm.E) None of the above 5. In the mean- bar digression graph, which one of the following statements is admittedly(a) regarding the indifference curve of a risk-averse investor? A) It is the locus of portfolios that have the similar expected rolls of return and different standard deviations. B) It is the locus of portfolios that have the same standard deviations and different prizes of return. C) It is the locus of portfolios that offer the same service program according to returns and standard deviations. D) It connects portfolios that offer increasing utilities according to returns and standard deviations.E) no(prenominal) of the above . 6. borrow an investor with the following utility function U = E(r) 3/2(s2). To maximize her expected utility, she would distinguish the as countersink 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 above Consider a risky portfolio, A, with an expected rate of return of 0. 15 and a standard deviation of 0. 15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve? A) E(r) = 0. 15 Standard deviation = 0. 20 B) E(r) = 0. 5 Standard deviation = 0. 10 C) E(r) = 0. 10 Standard deviation = 0. 10 D) E(r) = 0. 20 Standard deviation = 0. 15 E) E(r) = 0. 10 Standard deviation = 0. 20 An investor can choose to invest in T-bills paying 5% or a risky portfolio with end-of-year cash flow of $132,000. If the investor requires a risk premium of 5%, what would she be willing to pay for the risky portfolio? A) $100,0 00 B) $108,000 C) $120,000 D) $145,000 E) $147,000 7. 8. 9. You invest $100 in a risky summation 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 money must be invested in the risky asset and the unhazardous 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 determined 10. Beta is the measure of A) firm specific risk. B) diversifiable risk. C) market place risk. D) unique risk. E) none of the above. 11. The efficient frontier of risky assets is A) the portion of the investment chance set that lies above the global minimum variance portfolio. B) the portion of the investment fortune set that represents the highest standard deviations.C) the portion of the investment opportunity set which includes the portfolios with the final standard deviation. D) the set of portfolios that have zero stan dard deviation. E) both A and B are true. 12. Consider deuce perfectly negatively gibe 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 variance 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 described by Markowitz is close concerned with A) the elimination of systematic risk. B) the effect of diversification on portfolio risk. C) the credit of unsystematic risk. D) active portfolio management to enhance returns. E) none of the above. 14. match to the swell Asset determine Model (CAPM) a well diversified portfolios rate of return is a function of A) ma rket 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 present (CAPM), the expected rate of return on security 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 efficient frontier. C) every securities in the market portfolio are held in proportion to their market values. D) It is the striking point between the capital market line and the indifference curve.E) all in 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 beta 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) underpriced. B) overpriced. C) fairly priced. D) cannot be determined from data provided. E) none of the above. 18. According to the mogul place, covariances among security pairs are A) due to the influence of a one common factor represented by the market index return. B) highly difficult to calculate. C) related to industry-specific events.D) usually positive. E) A and D 19. In the undivided-index model represented by the equation ri = E(ri) + ? iF + ei, the term ei represents A) the bear upon of unanticipated 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. cogitate two portfolios have the same average return, the same standard deviation of returns, but portfolio A has a higher beta than portfolio B.According to the Sharpe measure, the performance of portfolio A __________. A) is better than the performance 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 arbitrage 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 riskfr ee rate of return is 10%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio _________ and a long position 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 stock at $55 per share. The initial edge is 60%. At what stock price would you receive a bank predict if the maintenance margin is 35%? A. $51. 00 B. $65. 18 C. $35. 22 D. $40. 36 E. none of the above 25. You purchased gram 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. found 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 regressi on analysis to estimate the index model for a stock. When doing so, the shift 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 result 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