Sample Final Solution Bonds

Fin 825 Sample Final Solution Name: __________________________ Date: _____________ Part I Multiple Choice 1. Which of the following is true of the Dow Jones Industrial Average? A) It is a value-weighted average of 30 large industrial stocks. B) It is a price-weighted average of 30 large industrial stocks. C) The divisor must be adjusted for stock splits. D) A and C. E) B and C. 2. Assume that you purchased 200 shares of Super Performing mutual fund at a net asset value of $21 per share. During the year you received dividend income distributions of $1.50 per share and capital gains distributions of $2.85 per share. At the end of the year the shares had a net asset value of $23 per share. What was your rate of return on this investment? A) 30.24% B) 25.37% C) 27.19% D) 22.44% E) 29.18%

3. You have been given this probability distribution for the holding period return for XYZ stock:

State of the Economy Boom Normal growth Recession

Probability .30 .50 .20

HPR 18% 12% - 5%

What is the standard deviation for XYZ stock? A) 2.07% B) 9.96% C) 7.04% D) 1.44% E) 8.13%

Use the following to answer question 4:

Investment Expected Return E(r) Standard Deviation 1 0.12 0.3 2 0.15 0.5 3 0.21 0.16 4 0.24 0.21 U = E(r) - (A/2)s , where A = 4.0.

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4. Based on the utility function above, which investment would you select? A) 1 B) 2 C) 3 D) 4 E) cannot tell from the information given 5. The Capital Market Line I) is a special case of the Capital Allocation Line. II) represents the opportunity set of a passive investment strategy. III) has the one-month T-Bill rate as its intercept. IV) uses a broad index of common stocks as its risky portfolio. A) I, III, and IV B) II, III, and IV C) III and IV D) I, II, and III E) I, II, III, and IV 6. Security X has expected return of 12% and standard deviation of 20%. Security Y has expected return of 15% and standard deviation of 27%. If the two securities have a correlation coefficient of 0.7, what is their covariance? A)...