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Question 1. Your portfolio is comprised of 30% of stock X, 50% of stock Y, and 20% of stock Z. Stock X has a beta of .64, stock Y has a beta of 1.48, and stock Z has a beta of 1.04. What is the beta of your portfolio?

A. 1.01

B. 1.05

C. 1.09

D. 1.14

E. 1.18

Question 2. Which one of the following is an example of systematic risk?

A. the price of lumber declines sharply

B. airline pilots go on strike

C. the Federal Reserve increases interest rates

D. a hurricane hits a tourist destination

E. people become diet conscious and avoid fast food restaurants

Question 3. The dominant portfolio with the lowest possible risk is:

A. the efficient frontier.

B. the minimum variance portfolio.

C. the upper tail of the efficient set.

D. the tangency portfolio.

E. None of these.

Question 4. Beta measures:

A. the ability to diversify risk.

B. how an asset covaries with the market.

C. the actual return on an asset.

D. the standard deviation of the assets’ returns.

E. All of these.

Question 5. The measure of beta associates most closely with:

A. idiosyncratic risk.

B. risk-free return.

C. systematic risk.

D. unexpected risk.

E. unsystematic risk.

Question 6. The separation principle states that an investor will:

A. choose any efficient portfolio and invest some amount in the riskless asset to generate the expected return.

B. choose an efficient portfolio based on individual risk tolerance or utility.

C. never choose to invest in the riskless asset because the expected return on the riskless asset is lower over time.

D. invest only in the riskless asset and tangency portfolio choosing the weights based on individual risk tolerance.

E. All of these.

Question 7. The diversification effect of a portfolio of two stocks:

A. increases as the correlation between the stocks declines.

B. increases as the correlation between the stocks rises.

C. decreases as the correlation between the stocks rises.

D. Both increases as the correlation between the stocks declines; and decreases as the correlation between the stocks rises.

E. None of these.

Question 8. You purchased 300 shares of Deltona, Inc. stock for $44.90 a share. You have received a total of $630 in dividends and $14,040 in proceeds from selling the shares. What is your capital gains yield on this stock?

A. 4.06%

B. 4.23%

C. 4.68%

D. 8.55%

E. 8.91%

Question 9. You bought 100 shares of stock at $20 each. At the end of the year, you received a total of $400 in dividends, and your stock was worth $2,500 total. What was your total dollar capital gain and total dollar return?

A. $400; $500

B. $400; $900

C. $500; $900

D. $900; $2,500

E. None of these

Question 10. One year ago, you purchased a stock at a price of $32 a share. Today, you sold the stock and realized a total return of 25%. Your capital gain was $6 a share. What was your dividend yield on this stock?

A. 1.25%

B. 3.75%

C. 6.25%

D. 18.75%

E. 21.25%

Question 11. The market portfolio of common stocks earned 14.7% in one year. Treasury bills earned 5.7%. What was the real risk premium on equities?

A. 5.0%

B. 6.5%

C. 9.0%

D. 12.2%

E. 18.7%

Question 12. A stock has an expected rate of return of 8.3% and a standard deviation of 6.4%. Which one of the following best describes the probability that this stock will lose 11% or more in any one given year?

A. less than 0.5%

B. less than 1.0%

C. less than 1.5%

D. less than 2.5%

E. less than 5%

Question 13. You just sold 200 shares of Langley, Inc. stock at a price of $38.75 a share. Last year you paid $41.50 a share to buy this stock. Over the course of the year, you received dividends totaling $1.64 per share. What is your capital gain on this investment?

A. -$550

B. -$222

C. -$3

D. $550

E. $878

Question 14. Today, you sold 200 shares of SLG, Inc. stock. Your total return on these shares is 12.5%. You purchased the shares one year ago at a price of $28.50 a share. You have received a total of $280 in dividends over the course of the year. What is your capital gains yield on this investment?

A. 4.80%

B. 5.00%

C. 6.67%

D. 7.59%

E. 11.67%

Question 15. Winslow, Inc. stock is currently selling for $40 a share. The stock has a dividend yield of 3.8%. How much dividend income will you receive per year if you purchase 500 shares of this stock?

A. $152

B. $190

C. $329

D. $760

E. $1,053