FINANCE 306 ACTUAL EXAM SCRIPT
2026 QUESTIONS AND SOLUTIONS
GRADED A+.
■ Small U.S. Stocks. Answer- "Small cap" stocks that are smaller in
capitalization compared to that of the S&P
■ International Stocks. Answer- stocks of companies based entirely
outside the US or throughout the world
■ Corporate Bonds. Answer- long-term debt issued by private
corporations typically paying semiannual coupons and returning the face
value of the bond at maturity
■ T-bills. Answer- Debt securities issued by the U.S Gov't
■ risk-return trade-off. Answer- the principle that the greater the risk a
lender takes in making a loan, the higher the interest rate required
■ Expected return. Answer- mean of all possible outcomes of portfolio
payoff
, ■ Variance. Answer- the average of the squared deviations from the
mean
■ Standard deviation (volatility). Answer- the square root of the variance
■ Portfolio. Answer- Basket of assets held together. Each asset has its
own weight, expected return and volatility. Portfolio has an expected
return and volatility
■ W1. Answer- Asset 1 weight
■ R1. Answer- Asset 1 return
■ W2. Answer- Asset 2 weight
■ R2. Answer- Asset 2 return
■ Rp. Answer- Portfolio return
■ Erp. Answer- Expected Portfolio Return
■ Diversification. Answer- Spreading out investments to reduce risk
2026 QUESTIONS AND SOLUTIONS
GRADED A+.
■ Small U.S. Stocks. Answer- "Small cap" stocks that are smaller in
capitalization compared to that of the S&P
■ International Stocks. Answer- stocks of companies based entirely
outside the US or throughout the world
■ Corporate Bonds. Answer- long-term debt issued by private
corporations typically paying semiannual coupons and returning the face
value of the bond at maturity
■ T-bills. Answer- Debt securities issued by the U.S Gov't
■ risk-return trade-off. Answer- the principle that the greater the risk a
lender takes in making a loan, the higher the interest rate required
■ Expected return. Answer- mean of all possible outcomes of portfolio
payoff
, ■ Variance. Answer- the average of the squared deviations from the
mean
■ Standard deviation (volatility). Answer- the square root of the variance
■ Portfolio. Answer- Basket of assets held together. Each asset has its
own weight, expected return and volatility. Portfolio has an expected
return and volatility
■ W1. Answer- Asset 1 weight
■ R1. Answer- Asset 1 return
■ W2. Answer- Asset 2 weight
■ R2. Answer- Asset 2 return
■ Rp. Answer- Portfolio return
■ Erp. Answer- Expected Portfolio Return
■ Diversification. Answer- Spreading out investments to reduce risk
