Question

Question 6

Acme Enterprises has a beta of 1.25. The historic return of the S&P500 has been 10.12% per year, and 3-month T-bills have returned 3.56% per year compounded annually. Using these historic returns as predictors of future returns, what the required return [or expected return] of Acme Enterprises?

Select one:

a. 11.0 percent to 12.0 percent

b. 10.0 percent to 11.0 percent

c. More than 12.0%

d. Less than 9.0 percent

e. 9.0 percent to 10.0 percent

Question 7

The historic return of the S&P500 has been 10.12% per year, and 3-month T-bills have returned 3.56% per year, compounded annually. Long term government bonds have returned 5.65% per year, compounded annually. What has been the "market risk premium"?

Select one:

a. More than 7.0%

b. 6.0% to 7.0%

c. 4.0% to 5.0%

d. Less than 3.0%

e. 3.0% to 4.0%

Question 8

You own a portfolio consisting of the securities listed below. The expected return for each security is as shown. What is the expected return on the portfolio?

	Number	Price	Expected
	of shares	per share	Return
A	250	$       15.00	11.20%
B	300	$       27.00	16.40%
C	500	$       38.00	8.70%
D	100	$         9.00	24.50%

Select one:

a. Less than 10.0%

b. 11.0% to 12.0%

c. 10.0% to 11.0%

d. More than 13.0%

e. 12.0% to 13.0%

Question 9

What is the beta of the following portfolio?  

Stock	Value	Beta
A	$32,960	0.76
B	$15,780	1.31
C	$8,645	1.49
D	$19,920	0

Select one:

a. .40 to .60

b. More than .80

c. Less than .20

d. .60 to .80

e. .20 to .40

Answer 1

Q6.

R = Rf+ B(Rm-Rf)

Where,

Rf = Risk Free Return

B= Beta

Rm-Rf= Risk Premium

=0.0356+1.25*(0.1012-0.0356)

=0.0356+1.25*(0.0656)

=11.76 % Correct Option =a. 11.0 percent to 12.0 percent

Q7)

Rm-Rf= Risk Premium

=10.12%-3.56%

=6.56%

Correct Option =b. 6.0% to 7.0%

Q8)

Stock	Invesetment	Weight	Expected return	Expected return on portfolio
a	b	c=b/31750	d	e=c*d
Stock A	$            3,750	0.12	11.20%	1.32%
Stock B	$            8,100	0.26	16.40%	4.18%
Stock C	19000	0.60	8.70%	5.21%
Stock D	900	0.03	24.50%	0.69%
Total	$         31,750	1.00		11.41%
correct Option =b. 11.0% to 12.0%

Q9)

Beta of the portfolio
Stock	Investment	Weight	Beta	Weight*beta
a	b	c=b/77305	d	e=c*d
A	$         32,960	0.43	0.76	0.32
B	$         15,780	0.20	1.31	0.27
C	$            8,645	0.11	1.49	0.17
D	$         19,920	0.26	0	0.00
Total	$         77,305	1.00		0.76

Correct Option =d. .60 to .80