fiinace exam

1. An efficient capital market is best defined as a market in which security prices reflect which one of the following?
A. Current inflation
B. A risk premium
C. Available information
D. The historical arithmetic rate of return
E. The historical geometric rate of return

2. The rate of return on which one of the following is used as the risk-free rate?
A. Long-term government bonds
B. Long-term corporate bonds
C. Inflation, as measured by the Consumer Price Index
D. U.S. Treasury bill
E. Large-company stocks

3. Over the past five years, a stock returned 8.3 percent, -32.5 percent, -2.2 percent, 46.9 percent and 11.8 percent. What is the variance of these returns?
A. 0.071188
B. 0.076290
C. 0.081504
D. 0.082547
E. 0.091306

4. The common stock of Western Hill Farms has yielded 16.3 percent, 7.2 percent, 11.8 percent, -3.6 percent, and 9.9 percent over the past five years, respectively. What is the geometric average return?
A. 7.91 percent
B. 8.03 percent
C. 8.11 percent
D. 8.27 percent
E. 8.32 percent

5. A stock has returns for five years of 23 percent, -17 percent, 8 percent, 22 percent, and 3 percent. The stock has an average return of ______ percent and a standard deviation of _____ percent.
A. 7.80; 13.54
B. 7.80; 14.63
C. 7.80; 16.36
D. 14.60; 14.63
E. 14.60; 16.36

6. 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

7. Which one of the following describes systemic risk?
A. Risk that affects a large number of assets
B. An individual security's total risk
C. Diversifiable risk
D. Asset specific risk
E. Risk unique to a firm's management

8. Which one of the following terms best refers to the practice of investing in a variety of diverse assets as a means of reducing risk?
A. Systematic
B. Unsystematic
C. Diversification
D. Security market line
E. Capital asset pricing model

9. What is the beta of the following portfolio?

Stock Value Beta

S $32,800 0.97

T $16,700 1.26

U $21,100 0.79

V $4,600 1.48

A. 0.98
B. 1.02
C. 1.11
D. 1.14
E. 1.20

10. A stock has a beta of 1.24, an expected return of 13.68 percent, and lies on the security market line. A risk-free asset is yielding 2.8 percent. You want to create a $6,000 portfolio consisting of Stock A and the risk-free security such that the portfolio beta is 0.65. What rate of return should you expect to earn on your portfolio?
A. 8.50 percent
B. 9.16 percent
C. 9.33 percent
D. 9.41 percent
E. 9.56 percent