Portfolio: Investment and Percent B. Essay

8. Which one of the following best describes a portfolio? A. Risky security
B. Security equally as risky as the overall market
C. New issue of stock
D. Group of assets held by an investor
E. Investment in a risk-free security
15. Which one of the following is the slope of the security market line? A. Risk-free rate
B. Market risk premium
C. Beta coefficient
D. Risk premium on an individual asset
E. Market rate of return
21. Standard deviation measures _____ risk while beta measures _____ risk.

A. systematic; unsystematic
B. unsystematic; systematic
C. total; unsystematic
D. total; systematic
E. asset-specific; market
23. The risk premium for an individual security is based on which one of the following types of risk? A. Total
B. Surprise
C. Diversifiable
D. Systematic
E. Unsystematic
27. Candy and More stock is expected to produce the following returns given the various states of the economy. What is the expected return on this stock?
A. 7.89 percent
B. 8.56 percent
C. 9.43 percent
D. 9.90 percent
E. 10.02 percent
Expected return = (0.05 0.02) + (0.70 0.09) + (0.25 0.14) = 9.90 percent 32. You own a portfolio that is invested as follows: \$11,600 of stock A, \$7,800 of stock B, \$14,900 of stock C, and \$3,200 of stock D. What is the portfolio weight of stock C? A. 38.47 percent

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B. 39.73 percent
C. 41.26 percent
D. 41.94 percent
E. 43.08 percent
WeightC = \$14,900/(\$11,600 + \$7,800 + \$14,900 + \$3,200) = 39.73 percent 34. You have compiled the following information on your investments. What rate of return should you expect to earn on this portfolio?

A. 9.54 percent
B. 9.83 percent
C. 10.01 percent
D. 10.27 percent
E. 10.58 percent
ValueA = 150 \$23 = \$3,450
ValueB = 400 \$37 = \$14,800
ValueC = 200 \$42 = \$8,400
ValueD = 350 \$16 = \$5,600
ValuePort = \$3,450 + \$14,800 + \$8,400 + \$5,600 = \$32,250
Expected return = [(\$3,450/\$32,250) 0.128] + [(\$14,800/\$32,250) 0.036] + [(\$8,400/\$32,250) 0.098] + [(\$5,600/\$32,250) 0.245] = 9.83 percent

36. What is the beta of the following portfolio?

A. 0.98
B. 1.02
C. 1.11
D. 1.14
E. 1.20
Portfolio value = \$32,800 + \$16,700 + \$21,100 + \$4,600 = \$75,200 P = (\$32,800/\$75,200)(0.97) + (\$16,700/\$75,200)(1.26) + (\$21,100/\$75,200)(0.79) + (\$4,600/\$75,200)(1.48) = 1.02 39. LKP, Inc., stock has an expected return of 14.47 percent. The risk-free rate is 3.8 percent and the market risk premium is 8.6 percent. What is the stock’s beta? A. 1.19

B. 1.21
C. 1.24
D. 1.28
E. 1.32
E(r) = 0.1447 = 0.038 + (0.086); = 1.24

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