FIN 300 TEST WITH COMPLETE
SOLUTIONS 100% GUARANTEED
PASS
The holding-period return on a stock was 32%. Its beginning price was $25, and its cash
dividend was $1.50. Its ending price must have been - Answer- 32% = (x - 25 + 1.5) / 25
8 = x - 23.5
x = 31.5
You are considering investing $2,800 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 8% and a risky portfolio, P, constructed with two
risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%
respectively. X has an expected rate of return of 14%, and Y has an expected rate of
return of 10%. To form a complete portfolio with an expected rate of return of 10%, you
should invest approximately __________ in the risky portfolio. This will mean you will
also invest approximately __________ and __________ of your complete portfolio in
security X and Y, respectively. - Answer- E(r) = (14% * 0.6) + (10% * 0.4)
= 0.084 + 0.04 = 0.124
0.10 = (0.124 * W) + 0.08*(1 - W)
0.10 = (0.124 * W) + 0.08 - 0.08 * W
0.02 = (0.124 * W) - (0.08 * W)
0.02 = 0.044 * W
W = .4545
So 45%, 27%, 18%
Lear Corporation has an expected excess return of 8% next year. Assume Lear's beta is
1.43. If the economy booms and the stock market beats expectations by 5%, what was
Lear's actual excess return? - Answer- Actual Excess Return = 8% + (5% * 1.43)
= 15%
A stock has a correlation with the market of 0.62. The standard deviation of the market
is 28%, and the standard deviation of the stock is 36%. What is the stock's beta? -
Answer- Beta = (0.62 * 36%) / 28% = 0.80
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of
return of 35%, while stock B has a standard deviation of return of 15%. The correlation
coefficient between the returns on A and B is 0.45. Stock A comprises 40% of the
portfolio, while stock B comprises 60% of the portfolio. The standard deviation of the
, return on this portfolio is - Answer- Variance = (0.4 * 0.35)^2 + (0.6 * 0.15)^2 + 2(0.4 *
0.35 * 0.6 * 0.15 * 0.45
= (0.0196) + (0.0081) + 2(0.0057) = 0.0390
St Dev = sqrt(0.0390) = 19.76%
Consider the CAPM. The expected return on the market is 19%. The expected return on
a stock with a beta of 1.8 is 27%. What is the risk-free rate? - Answer- 27% = rf +
1.8[(19% - rf)]
27% = rf + 34.2% - 1.8rf
0.8rf = 7.2%
rf = 9%
The expected return on the market portfolio is 20%. The risk-free rate is 11%. The
expected return on SDA Corporation common stock is 19%. The beta of SDA
Corporation common stock is 1.80. Within the context of the capital asset pricing model
- Answer- 11% + 1.8(20% - 11%)
=11% + 36% -19.8%
= 27.2%
Alpha = 19% - 27.2%
= -8.2%
You consider buying a share of stock at a price of $12. The stock is expected to pay a
dividend of $1.60 next year, and your advisory service tells you that you can expect to
sell the stock in 1 year for $14. The stock's beta is 1.2, rf is 15%, and E[rm] = 25%.
What is the stock's abnormal return? - Answer- HPR = 14 - 12 + 1. = 30%
CAPM return = 15% + 1.2(25% - 15%)
= 15% + 30% - 18% = 27%
Alpha = 30% - 27% = 3%
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of
1.2. Stock B has an expected return of 14% and a beta of 1.8. The expected market
rate of return is 9% and the risk-free rate is 5%. Security __________ would be
considered the better buy because - Answer-
You have a $49,000 portfolio consisting of Intel, GE, and Con Edison. You put $19,600
in Intel, $11,600 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have
betas of 1.3, 1, and 0.8, respectively. What is your portfolio beta? - Answer-
19,600/49000 = 0.4
11,600/49000 = 0.23
17,800/49000 = 0.36
Beta = (0.4 * 1.3) + (0.24 * 1) + (0.36 * 0.8) = (.52) + (.24) + (0.29)
= 1.05
You invest $1,450 in security A with a beta of 1.2 and $1,250 in security B with a beta of
0.8. The beta of this portfolio is - Answer- 1450 + 1250 = 2,700
1450/2700 = 0.54
SOLUTIONS 100% GUARANTEED
PASS
The holding-period return on a stock was 32%. Its beginning price was $25, and its cash
dividend was $1.50. Its ending price must have been - Answer- 32% = (x - 25 + 1.5) / 25
8 = x - 23.5
x = 31.5
You are considering investing $2,800 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 8% and a risky portfolio, P, constructed with two
risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%
respectively. X has an expected rate of return of 14%, and Y has an expected rate of
return of 10%. To form a complete portfolio with an expected rate of return of 10%, you
should invest approximately __________ in the risky portfolio. This will mean you will
also invest approximately __________ and __________ of your complete portfolio in
security X and Y, respectively. - Answer- E(r) = (14% * 0.6) + (10% * 0.4)
= 0.084 + 0.04 = 0.124
0.10 = (0.124 * W) + 0.08*(1 - W)
0.10 = (0.124 * W) + 0.08 - 0.08 * W
0.02 = (0.124 * W) - (0.08 * W)
0.02 = 0.044 * W
W = .4545
So 45%, 27%, 18%
Lear Corporation has an expected excess return of 8% next year. Assume Lear's beta is
1.43. If the economy booms and the stock market beats expectations by 5%, what was
Lear's actual excess return? - Answer- Actual Excess Return = 8% + (5% * 1.43)
= 15%
A stock has a correlation with the market of 0.62. The standard deviation of the market
is 28%, and the standard deviation of the stock is 36%. What is the stock's beta? -
Answer- Beta = (0.62 * 36%) / 28% = 0.80
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of
return of 35%, while stock B has a standard deviation of return of 15%. The correlation
coefficient between the returns on A and B is 0.45. Stock A comprises 40% of the
portfolio, while stock B comprises 60% of the portfolio. The standard deviation of the
, return on this portfolio is - Answer- Variance = (0.4 * 0.35)^2 + (0.6 * 0.15)^2 + 2(0.4 *
0.35 * 0.6 * 0.15 * 0.45
= (0.0196) + (0.0081) + 2(0.0057) = 0.0390
St Dev = sqrt(0.0390) = 19.76%
Consider the CAPM. The expected return on the market is 19%. The expected return on
a stock with a beta of 1.8 is 27%. What is the risk-free rate? - Answer- 27% = rf +
1.8[(19% - rf)]
27% = rf + 34.2% - 1.8rf
0.8rf = 7.2%
rf = 9%
The expected return on the market portfolio is 20%. The risk-free rate is 11%. The
expected return on SDA Corporation common stock is 19%. The beta of SDA
Corporation common stock is 1.80. Within the context of the capital asset pricing model
- Answer- 11% + 1.8(20% - 11%)
=11% + 36% -19.8%
= 27.2%
Alpha = 19% - 27.2%
= -8.2%
You consider buying a share of stock at a price of $12. The stock is expected to pay a
dividend of $1.60 next year, and your advisory service tells you that you can expect to
sell the stock in 1 year for $14. The stock's beta is 1.2, rf is 15%, and E[rm] = 25%.
What is the stock's abnormal return? - Answer- HPR = 14 - 12 + 1. = 30%
CAPM return = 15% + 1.2(25% - 15%)
= 15% + 30% - 18% = 27%
Alpha = 30% - 27% = 3%
Consider two stocks, A and B. Stock A has an expected return of 10% and a beta of
1.2. Stock B has an expected return of 14% and a beta of 1.8. The expected market
rate of return is 9% and the risk-free rate is 5%. Security __________ would be
considered the better buy because - Answer-
You have a $49,000 portfolio consisting of Intel, GE, and Con Edison. You put $19,600
in Intel, $11,600 in GE, and the rest in Con Edison. Intel, GE, and Con Edison have
betas of 1.3, 1, and 0.8, respectively. What is your portfolio beta? - Answer-
19,600/49000 = 0.4
11,600/49000 = 0.23
17,800/49000 = 0.36
Beta = (0.4 * 1.3) + (0.24 * 1) + (0.36 * 0.8) = (.52) + (.24) + (0.29)
= 1.05
You invest $1,450 in security A with a beta of 1.2 and $1,250 in security B with a beta of
0.8. The beta of this portfolio is - Answer- 1450 + 1250 = 2,700
1450/2700 = 0.54
