Purchase Solution

Margin interest, yield, holding period return, Sharpe measure

Not what you're looking for?

Ask Custom Question

1. You purchased 250 shares of common stock on margin for $25 per share. The initial margin is 65% and the stock pays no dividend. Your rate of return would be _____ if you sell the stock at $32 per share. Ignore interest on margin.
a. 35% b. 39% c. 43% d. 28%

2. The assets of a mutual fund are $25 million. The liabilities are $4 million. If the fund has 700,000 shares outstanding and pays a $3 dividend. What is the dividend yield?
a. 5% b. 10% c. 15% d. 20%

3. The offer price of an open-end fund is $17.90 and the fund is sold with the front-end of 4.5%? What is the fund's NAV (net asset value)?
a. $18.74 b. $17.09 c. $15.40 d. $16.57

4. You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR (holding period return) was?
a. 4% b. 3.5% c. 7.5% d. 11%

5. The geometric average of -12%, 20% and 25% is ___.
a. 8.42% b. 11% c. 9.70% d. 18.88%

6. 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?
a. 12.8% b. 11% c. 8.9% d. 9.2%

7. A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe measure of ___.
a. 2.22 b. 0.60 c. 0.42 d. 0.25

8. An investor invest 70% of her wealth in a risky asset with a 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 _____ and ____ respectively.
a. 10% and 6.7%
b. 12% and 22.4%
c. 12% and 15.7%
d. 10% and 35%

9. A portfolio is composed of two stocks. A and B. Stock A has a standard deviation of return of 24% while stock B has a standard deviation of return of 18%. Stock A comprises 60% of the portfolio while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is .0380, the correlation coefficient between the returns on A and B is ___.
a. 0.583 b. 0.225 c. 0.327 d. 0.128
10. The standard deviation of return on investment A is .10 while the standard deviation of return on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coefficient between the returns on A and B is ___.
a. .12 b. .36 c. .60 d. .77

11. A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35% while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is 0.45. Stock A comprises 40% of the portfolio while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is___.
a. 23% b. 19.76% c. 18.45% d. 17.67%

12. A stock has a correlation with the market of 0.45. The standard deviation of the market is 21% and the standard deviation of the stock is 35%. What is the stock's beta?
a. 1.00 b. 0.75 c. 0.60 d. 0.55
13. Consider the CAPM (capital asset pricing model). The risk-free rate is 6% and the expected return on the market is 18%. What is the expected return on a stock with a beta of 1.3?
a. 6% b. 15.6% c. 18% d. 21.6%
14. Consider the CAPM. The risk-free rate is 5% and the expected return on the market is 15%. What is the beta on a stock with an expected return of 12%.
a. .5 b. .7 c. 1.2 d. 1.4

Use the following to answer questions 15 and 16
return SML (security market line)
15%
10%
5%
0%
1 2 beta

15. What is the expected return on the market?
a. 0% b. 5% c. 10% d. 15%
16. What is the alpha of a portfolio with a beta of 2 and actual return of 15%
a. 0% b. 13% c. 15% d. 17%

Purchase this Solution

Solution Summary

The expert examines margin interest, holding period returns and Sharpe measures.

Solution Preview

Answer:
Given that,
Number of shares purchased=250
Purchase price of the share=$25
Initial margin=65%
Selling price of the share=$32
Now,
Total investment done by the investor=250*$25*65%=$4062.5
Total amount borrowed by the investor=250*$25*35%=$2187.5
Total amount received after sell=250*$32=$8,000
Amount left after loan repayment=$8,000-$2,187.5=$5,812.5

Hence return on investment=($4,062.5-$5,812.5)/4,062.5=43%

We have,
Asset of the mutual fund=$25 million
Liabilities of the mutual fund=$4 million
Shares outstanding=700,000
Dividend per share=$3
Now,
NAV=($25,000,000-$4,000,000)/700,000=$30
Hence,
Dividend yield=$3/$30=10%
Given that,
Offer price of an open end ...

Solution provided by:
Education
  • MBA, Indian Institute of Finance
  • Bsc, Madras University
Recent Feedback
  • "I've posted a similar question for another course. It's post 657940, and it's a practice problem that I'd like to use for the final exam. Your help will be greatly appreciated. "
  • "thank you!"
  • "Thank you again Jayant. You are super fast. "
  • "Thank you Jayant. You are appreciated. "
  • "Again, thank you Jayant. You are wonderful. "
Purchase this Solution


Free BrainMass Quizzes
Business Ethics Awareness Strategy

This quiz is designed to assess your current ability for determining the characteristics of ethical behavior. It is essential that leaders, managers, and employees are able to distinguish between positive and negative ethical behavior. The quicker you assess a person's ethical tendency, the awareness empowers you to develop a strategy on how to interact with them.

Transformational Leadership

This quiz covers the topic of transformational leadership. Specifically, this quiz covers the theories proposed by James MacGregor Burns and Bernard Bass. Students familiar with transformational leadership should easily be able to answer the questions detailed below.

Change and Resistance within Organizations

This quiz intended to help students understand change and resistance in organizations

Cost Concepts: Analyzing Costs in Managerial Accounting

This quiz gives students the opportunity to assess their knowledge of cost concepts used in managerial accounting such as opportunity costs, marginal costs, relevant costs and the benefits and relationships that derive from them.

Balance Sheet

The Fundamental Classified Balance Sheet. What to know to make it easy.