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Finance Questions: Expected Return and Portfolio Return

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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Solution Summary

This posting provides solutions to finance questions based on expected return and portfolio return