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Finance Questions: Expected Return and Portfolio Return

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Changes in interest rates represent the type of risk that can be categorized as:

1) Market risk

2) Economics risk

3) Firm-specific risk

3) Unsystematic risk

"You own a portfolio that has 70% invested in asset A, and 30% invested in asset B. Asset A's standard deviation is 12% and asset B's standard deviation is 20%. The correlation coefficient between the two assets is -0.8. The expected return on the portfolio is 15%. The standard deviation for this portfolio is closest to:

1) 0.26%

2) 4.00%

3) 4.36%

4) 5.09%

5) 0.29%

You are considering a new investment. The rate on treasury bills is 2.3% and the return on the S&P 500 is 8.5%. You have measured the non-diversifiable risk of the investment you are considering to be .7. What rate of return will you require on the investment?

1) 6.64%

2) 4.48%

3) 4.34%

4) 10.80%

5) 12.31%

Which one of the following is TRUE?

1) IRR is superior to NPV for choosing between different projects.

2) The NPV decision rule says to accept an investment if the NPV is positive.

3) Payback ignores the project s cost.

4) The IRR decision rule states that a project should be accepted if its IRR is equal to zero.

5) The discount rate that causes the net present value of a project to equal zero is called the market rate.

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Finance questions: Calculate expected return on a portfolio, the weight of a stock, beta and more.

A stock has a beta of 1.05 and an expected return of 19 percent. A risk-free asset currently earns 5.7 percent.

a. The expected return on a portfolio that is equally invested in the two assets is _______%. (Input answer as a percent rounded to 2 decimal places, without the percent sign.)

b. If a portfolio of the two assets has a beta of 0.75, the weight of the stock is _________% and the weight of the risk-free is _________% (Input answers as a percent rounded to 4 decimal places, without the percent sign).

c. If a portfolio of the two assets has an expected return of 7 percent, its beta is _________. (Round answer to 6 decimal places.)

d. If a portfolio of the two assets has a beta of 2.35, the weight of the stock is _________% and the weight of the risk-free is ________% (Input answers as a percent rounded to 2 decimal places, without the percent sign).

How do you interpret the weights for the two assets in this case? Explain

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