Risk and return quiz

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Q1--Examine the following probability distribution: Return Probability0.02 0.10.04 0.20.06 0.40.08 0.20.10 0.1The mean and standard deviation are:Answer = ?? a.0.06 and 0.0693, respectively. b.0.06 and 0.0693, respectively. c.0.06 and 0.022, respectively. d.0.07 and 0.022, respectivelyQ2--Which of the following investments does a rational investor prefer?Answer= ?? a.Investment A: E(R) = 10%, s = 3% b.Investment B: E(R) = 10%, s = 5% c.Investment C: E(R) = 11%, s = 3% d.None of the given options, as a rational investor would require more information from which to make a decision. Document Preview: Q1--Examine the following probability distribution: Return Probability0.02 0.10.04 0.20.06 0.40.08 0.20.10 0.1The mean and standard deviation are:Answer = ?? a.0.06 and 0.0693, respectively. b.0.06 and 0.0693, respectively. c.0.06 and 0.022, respectively. d.0.07 and 0.022, respectivelyQ2--Which of the following investments does a rational investor prefer?Answer= ?? a.Investment A: E(R) = 10%, s = 3% b.Investment B: E(R) = 10%, s = 5% c.Investment C: E(R) = 11%, s = 3% d.None of the given options, as a rational investor would require more information from which to make a decision.Q3-- Increasing the amount of wealth in Asset A whilst maintaining the entire wealth invested in a portfolio consisting of two assets only, A and B (assume that the expected return and standard deviation of both assets are A: 0.10 and 0.03, and B: 0.15 and 0.05, respectively):Answer = ?? a.will increase the expected return of the portfolio. b.may reduce the variance of the portfolio regardless of the correlation coefficient between Assets A and B. c.will decrease the expected return of the portfolio, but the expected return will be closer to 15% than before. d.will decrease the expected return of the portfolio, but the expected return will still be greater than if the portfolio consisted of Asset A only.Q4-- Systematic risk represents:Answer=?? a.diversifiable risk. b.risk that is unavoidable. c.risk that is diversifiable. d.none of the options given.Q5-- Given the information in the table below calculate the Beta of a portfolio that combines investments A, B, and C in the proportions given.InvestmentBetaWeightA0.7.3B1.2.2C1.6.5 Your answer should be accurate to two decimal places.Answer= ??Q6-- Given the information in the table below calculate the standard deviation of a portfolio combining Asset A and Asset B in the proportions of 60% and 40%, respectively. A correlation of .5 exists between A and B.AssetSDWeightA.10.6B.15.4 Give your answer as a decimal accurate to three... Attachments: Quiz---Risk-a....docx Sep 12 2012 12:38 PM

 

Solution ID:608962 | This paper was updated on 26-Nov-2015

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