1. Statistical Measure of Stand Alone Risk

1. Statistical Measure of Stand Alone Risk

1. Statistical Measure of Stand – Alone Risk:

Calculate the expected returns for the individual stocks in Juan’s portfolio as well as the expected rate of return of the entire portfolio over the three possible market conditions next year.

  • The expected rate of return for of Falcon Freight’s stock over the next year is:

A. 2.90%

B. 1.83%

C. 2.58%

D. 2.15%

  • The expected rate of return for Pheasant Pharmaceuticals over the next year is:

A. 4.52%

B. 4.96%

C. 4.00%

D. 2.60%

  • The expected rate of return on Juan’s portfolio over the next year is:

A. 3.13%

B. 2.22%

C. 2.61%

D. 3.52%

  • Based on the graph’s information, which of the two following statements is true?

1. Company A has a tighter probability distribution.

2. Company B has a tighter probability distribution.

2. Measuring Stand – Alone Risk Using Realized Data:

  • Given the preceding data above, the average realized return on FF’s stock is:

A. 63.50%

B. 78.74%

C. 50.80%

D. 25.40%

  • The preceding data represents ______of FF’s historical returns.

A. Sample

B. Universe

C. Population

  • Based on this condition, the standard deviation of FF’s historical returns is:

A. 10.21%

B. 8.79%

C. 15.41%

D. 11.42%

  • If investors expect the average realized return on FF’s stock from 2011 to 2015 to continue into the future, what will be its coefficient of variation (CV)?

A. 0.52

B. 0.45

C. 0.83

D. 0.38

3. Portfolio Risk and Diversification:

  • A financial planner is examining the portfolios held by several of her clients. Which of the three following is likely to have the smallest standard deviation?

A. Portfolio containing only Microsoft stock.

B. Portfolio containing Microsoft, Apple, and Google stock.

C. Portfolio consisting of about three randomly selected stocks from different sectors.

Portfolio managers pick stocks for their clients’ portfolios based on the investment objective of the portfolio and several other factors. One key consideration is each stocks contribution to portfolio risk and its statistical relationship with the portfolios other stocks.

Based on your understanding of portfolio risk, identify whether each statement is True or False.

1.

2.

3.

4.

4. Portfolio Expected Return and Risk:

  • What is the expected return of Andre’s stock portfolio?

A. 7.80%

B. 14.04%

C. 15.60%

D. 10.40%

A. Less Than

B. Equal To

C. More Than

5. Future Value

The process for converting present values into future values is called ______.

A. Discounting

B. Compounding

This process requires knowledge of the values of three of four time-value-of-money variables. Which of the following is not one of these variables?

A. The duration of the deposit (N)

B. the present value (PV) of amount deposited

C. the trend between the present and future values of an investment

D. the interest rate (I) that could be earned by deposited funds

Line A:

Line B:

Line C:

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