Finance Chapter 11 2 Calculate The Variance Returns For Alpha

56.

Calculate the variance of returns for Alpha stock with the following historical rates of return:

2013 20%

2014 25%

2015 30%

57.

What is the standard deviation of returns of a portfolio that produced returns of 10%, 15%, 25%, and 30%?

58.

What is the variance of returns of a portfolio that produced returns of 20%, 25%, and 30%, respectively?

59.

If the standard deviation of a portfolio’s returns is known to be 30%, then its variance is:

60.

What is the standard deviation of a portfolio’s returns if the mean return is 15%, and the variance of returns is 184?

61.

What is the standard deviation of returns for an investment that is equally likely to return 100% as it is to provide a 100%

loss?

62.

What is the typical relationship between the standard deviation of an individual common stock and the standard deviation of

a diversified portfolio of common stocks?

63.

The standard deviations of individual stocks are generally higher than the standard deviation of the market portfolio because

the market portfolio:

64.

The benefits of portfolio diversification are highest when the individual securities within the portfolio have returns that:

65.

The major benefit of diversification is the:

66.

Companies that are exposed to the business cycle:

67.

A firm is said to be countercyclical if its returns:

68.

Industries that generally perform very well when the entire economy performs well and perform very badly when the

economy performs badly are called:

69.

What is the expected return on a portfolio that will decline in value by 13% in a recession, will increase by 16% in normal

times, and will increase by 23% during boom times? Each scenario has an equal likelihood of occurrence.

70.

The higher the standard deviation of a stock’s returns, the:

71.

The incremental risk to a portfolio from adding another stock:

72.

In general, which stocks should be combined into a portfolio if the goal is the greatest reduction possible in overall portfolio

risk?

73.

Which one of the following concerns is likely to be most important to portfolio investors seeking diversification?

74.

A stock investor owns a diversified portfolio of 15 stocks. What will be the most likely effect on the portfolio‘s standard

deviation if one more stock is added?

75.

As you add more stocks to a portfolio:

76.

Risks that affect only a single firm are called:

77.

Which one of the following risks can be progressively eliminated by adding stocks to a portfolio?

78.

Which one of the following risks is most important to a well-diversified investor in common stocks?

79.

Which one of the following risks would be classified as a specific risk for an auto manufacturer?

80.

Which statement is correct concerning macro risk exposure?

81.

Individual stocks are:

82.

Which one of these is a specific risk?

83.

Which one of the following statements is incorrect concerning stock indexes?

84.

Periods of market decline are called:

85.

The fact that historical returns on Treasury bonds are less volatile than common stock returns indicates that:

86.

If the toss of a coin comes down heads, you win a dollar. If it comes down tails, you lose fifty cents. How much would you

expect to gain after 20 tosses?

87.

A project’s expected return is 15%, which represents a 35% return in a boom and a 5% return in a stagnant economy. What is

the probability of a boom if these are the only two economic states?

88.

What is the return to an investor who purchases a stock for $30, receives a $1.50 dividend at the end of the year, and then

sells the share for $28.50?

89.

Stock A has an expected return of 15%; stock B has an expected return of 8%. What is the expected return on a portfolio is

comprised of 60% of Stock A and 40% of Stock B?

90.

Which one of the following companies is most likely to be exposed to the least amount of macro risk?

91.

An investor holds a stock for one year. She then receives a dividend of $10 and sells the stock for $120. If her return was

16%, at what price did she buy the stock?

92.

Which one of the following would you expect to represent the broadest-based index of U.S. stocks?

93.

Treasury bonds have provided a higher historical return than Treasury bills, which can be attributed to their:

94.

Averaging the deviations from the mean for a portfolio of securities will:

95.

One common reason for reporting standard deviations of percentage returns rather than variances is that standard deviations:

96.

When viewing the long-term trend of the price volatility of U.S. stocks, it is readily apparent that volatility has:

97.

If a stock’s returns are volatile, then the stock:

98.

A good way to reduce macro risk in a stock portfolio is to invest in stocks that:

99.

Which one of the following firms is likely to exhibit the least macro risk exposure?

100.

Investment risk can best be described as the:

101.

Since about 1900, the standard deviation of annual returns on a portfolio of U.S. common stocks has been about:

Chapter 11 Test bank – Static Summary