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Multiple choice

____ 28. Here are the expected returns on two stocks:

Returns
Probability X Y
0.1 -20% 10%
0.8 20 15
0.1 40 20

If you form a 50-50 portfolio of the two stocks, what is the portfolio's standard deviation?
a. 16.5%
b. 10.5%
c. 13.4%
d. 8.1%
e. 20.0%

____ 32. A share of preferred stock pays a quarterly dividend of $1.00. If the price of the stock is $50, what is the nominal (not effective) annual rate of return?
a. 8.0%
b. 8.5%
c. 10.0%
d. 9.0%
e. 9.5%

Solution Preview

1. We first calculate the portfolio return for each probability. The portfolio return for 0.1 is 0.5X-20%+0.5X10%=-5%. Return for 0.8 is ...

Solution Summary

The solution explains two multiple choice questions relating to standard deviation and annual rate of return

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