# Margin interest, yield, holding period return, Sharpe measure

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%

https://brainmass.com/business/capital-asset-pricing-model/margin-interest-yield-holding-period-return-sharpe-measure-346707

#### 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 Summary

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