FINANCE 322 FINAL STUDY
QUESTIONS AND ANSWERS
You have been given this probability distribution for the holdingperiod return for GM stock:
Boom Prob 0.40 HPR 30%
Normal growth Prob 0.40 HPR 11%
Recession Prob 0.20 HPR -10% - CORRECT ANSWER221.04%
If a portfolio had a return of 15%, the ri...
If a portfolio had a return of 15%, the risk-free asset return was
5%, and the standard deviation of the portfolio's excess returns
was 30%, the Sharpe measure would be - CORRECT
ANSWER-.33
Skewness is a measure of - CORRECT ANSWER-the
symmetry of a distribution.
The risk premium for common stocks - CORRECT ANSWER-
cannot be zero, for investors would be unwilling to invest in
common stocks and must always be positive, in theory.
When a distribution is negatively skewed, - CORRECT
ANSWER-standard deviation underestimates risk.
, If a distribution has "fat tails," it exhibits - CORRECT ANSWER-
Kurtosis
The best measure of a portfolio's risk adjusted performance is
the _________. - CORRECT ANSWER-Sharpe measure
Which of the following measures of risk best highlights the
potential loss from extreme negative returns? - CORRECT
ANSWER-Value at risk (VaR)
The holding-period return (HPR) for a stock is equal to -
CORRECT ANSWER-the dividend yield plus the capital gains
yield.
You purchased a share of stock for $68. One year later, you
received $5.00 as a dividend and sold the share for $74.50.
What was your holding-period return? - CORRECT ANSWER-
16.9%
Which of the following statements regarding risk-averse
investors is true? - CORRECT ANSWER-They only accept
risky investments that offer risk premiums over the risk-free
rate.
Investment Expected Return E(r)Standard Deviation1 0.12 0.13
2 0.15 0.15 3 0.21 0.16 4 0.24 0.21
U = E(r) − (A/2)s2, where A = 4.0. - CORRECT ANSWER-3
Given the capital allocation line, an investor's optimal portfolio
is the portfolio that - CORRECT ANSWER-maximizes her
expected utility.
A fair game - CORRECT ANSWER-will not be undertaken by a
risk-averse investor and is a risky investment with a zero risk
premium.
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