Saint Leo MBA 570 quiz 6 by ella | Mar 26, 2024 | Finance Question 1.1.Which of the following statements is false? (Points : 10) The variance increases with the magnitude of the deviations from the mean. The variance is the expected squared deviation from the mean. Two common measures of the risk of a probability distribution are its variance and standard deviation. If the return is riskless and never deviates from its mean, the variance is equal to one. Question 2.2.Which of the following statements is false? (Points : 10) The standard error provides an indication of how far the sample average might deviate from the expected return. The 95% confidence interval for the expected return is defined as the historical average return plus or minus ten standard errors. We can use a security’s historical average return to estimate its actual expected return. The standard error is the standard deviation of the average return. Question 3.3.A firm has a 70% probability of a 20% return and a 30% probability of a -30% return. What is the expected return for the firm? (Points : 10) 14% 3% 5% -5% Question 4.4.Which of the following statements is false? (Points : 10) In exchange for bearing systematic risk, investors want to be compensated by earning a higher return. A key step to measuring systematic risk is finding a portfolio that contains only unsystematic risk. When evaluating the risk of an investment, an investor will care about its systematic risk, which cannot be eliminated through diversification. To measure the systematic risk of a stock, we must determine how much of the variability of its return is due to systematic, market-wide risks versus diversifiable, firm specific risks. Question 5.5.If the market risk premium is 7%, the risk-free rate is 4% and IBM’s beta is 0.73, then the expected return of investing in IBM is closest to __________. (Points : 10) 9.1% 10.3% 11.0% 12.0% Question 6.6.Suppose that in the coming year, you expect Exxon-Mobil stock to have a volatility of 42% and a beta of 0.9, and Merck’s stock to have a volatility of 24% and a beta of 1.1. The risk-free interest rate is 4% and the markets expected return is 12%. Which stock has the highest total risk? (Points : 10) Merck since it has a lower volatility Merck since it has a higher beta Exxon-Mobil since it has a higher volatility Exxon-Mobil since it has a lower beta Question 7.7.Which of the following statements is false? (Points : 10) The most familiar stock index in the United States is the Dow Jones Industrial Average (DJIA). A portfolio in which each security is held in proportion to its market capitalization is called a price-weighted portfolio. The Dow Jones Industrial Average (DJIA) consists of a portfolio of 30 large industrial stocks. The Dow Jones Industrial Average (DJIA) is a price-weighted portfolio. Question 8.8.Which of the following statements is false? (Points : 10) A market index reports the value of a particular portfolio of securities. The S&P 500 is the standard portfolio used to represent “the market” when using the CAPM in practice. Even though the S&P 500 includes only 500 of the more than 7,000 individual U.S. stocks in existence, it represents more than 70% of the U.S. stock market in terms of market capitalization. The S&P 500 is an equal-weighted portfolio of 500 of the largest U.S. stocks. Question 9.9.Wyatt Oil’s return was 5.5% in 2007, -32.6% in 2008, and 19.6% in 2009.Wyatt Oil’s average historical return is closest to __________. (Points : 10) -2.50% -3.33% -4.33% -5.17% Question 10.10.One factor that can affect the market risk of a project is its degree of operating leverage, which is: (Points : 10) the relative proportion of operating assets versus non-operating assets. the relative proportion of operating assets versus equity. the relative proportion of operating expenses versus non-operating expenses. the relative proportion of fixed versus variable costs. Order a similar assignment, and have writers from our team of experts write it for you, guaranteeing you an A
