9 Junkers stock is expected to return 127 percent in a normal economy, -184 percent in a recessionar

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9 Junkers stock is expected to return 127 percent in a normal economy, -184 percent in a recessionary economy, and

236 percent in a booming economy The probability of a boom is 8 percent and the probability of a recession is 22

percent What is the expected rate of return on this stock?

a 673 percent b 821 percent c 857 percent d 1022 percent





10 There is a 60 percent probability that a stock will earn 95 percent, a 35 percent probability that it will earn 117

percent, and a 5 percent probability that it will lose 76 percent What is the variance of these returns?

a 0001408 b 0001492 c 0001584 d 0001631





11 Ambrose Industries stock has an average expected rate of return of 136 percent and a standard deviation of 118

percent What is the probability the stock will lose more than 10 percent in any one year?

a 5 percent b 10 percent c 25 percent d 50 percent





12 Kate invested $7,400 in stock A, $11,200 in stock B, and $3,900 in stock C What is the portfolio weight of stock C?

a 01448 b 01623 c 01733 d 01847





13 A portfolio is equally invested in 2 stocks and a risk-free security Stock A is equally as risky as the market and stock

B has a beta of 124 What is the portfolio beta?

a 067 b 075 c 086 d 091





14 Stock A has a beta of 119 and an expected rate of return of 1342 percent The market risk premium is 82 percent

and the risk-free rate is 41 percent Which one of the following statements related to Stock A is correct?

a Stock A is correctly priced

b Stock A is underpriced

c Stock A is overpriced

d The answer cannot be determined based on the information provided





15 A stock has a beta of 096 and a standard deviation of 83 percent The market rate of return is 119 percent and the

market risk premium is 74 percent What is the expected return on the stock?

a 1160 percent b 1181 percent c 1196 percent d 1213 percent



Use this information to answer questions 9 and 10



State of Probability Returns

Economy of State Stock A Stock B Stock C

Boom 10 11 % 33% 15%

Normal 85 8 12 10

Recession 05 3 -46 -6





16 Katie invested 40 percent of her portfolio in stock A, 35 percent in stock B, and the remainder in stock C What is

her expected rate of return on this portfolio?

a 776 percent b 821 percent c 870 percent d 957 percent

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