week 10

The arithmetic average of -11%, 15% and 20% is? Fill in the blank: The arithmetic average is _______.

• 8.00%

• 6.00%

• 12.00%

• 4.00%

The geometric average of -12%, 20% and 25% is? Fill in the blank: The geometric average is _______.

• 9.70%

• 7.50%

• 12.00%

• 15.00%

• 4.31%

• 2.25%

• -3.45%

• 7.00%

Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return and a 30% chance of losing 6%. What is your expected return on this investment? Fill in the blank: The expected return is _______.

• 9.2%

• 7.8%

• 12.5%

• 4.6%

Your investment has a 40% chance of earning a 15% rate of return, a 50% chance of earning a 10% rate of return and a 10% chance of losing 3%. What is the standard deviation of this investment?

• 5.14%

• 3.25%

• 7.80%

• 2.10%

• Security A

• Security B

• Security C

• Security D

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are?

• Expected rate of return: 12%; Standard deviation: 15.7%

• Expected rate of return: 10%; Standard deviation: 10%

• Expected rate of return: 13%; Standard deviation: 12%

• Expected rate of return: 11%; Standard deviation: 8%

Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with a probability of 40% or 5% with a probability of 60%. Second, a treasury bill that pays 6%. The risk premium on the risky investment is?

• 0.03

• 0.01

• 0.05

• 0.02

Consider the following two investment alternatives. First, a risky portfolio that pays 20% rate of return with a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. If you invest $50,000 in the risky portfolio, your expected profit would be?

• 7,000

• 5,500

• 6,200

• 8,000

You put half of your money in a stock portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of your money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The stock and bond portfolio have a correlation 0.55. The standard deviation of the resulting portfolio will be? Fill in the blank.

• σ²p = 0.02592, σ = 16.1%

• σ²p = 0.03200, σ = 17.9%

• σ²p = 0.02100, σ = 14.5%

• σ²p = 0.04000, σ = 20.0%