Finance Questions and Problems

1. The probability distribution of a less risky return is more peaked than that of a riskier return. What Shape would the probability distribution have for (a) completely certain returns and (b) completely uncertain return?

2. Suppose you owned a portfolio consisting of $250,000 of US gov bonds with a maturity of 30 years

a.would your portfolio be riskless?
b.now suppose you hold a portfolio consisting of $250,000 of 30 day treasury bills. Every 30 days your bills mature, and you reinvest the principal in a new batch of bills
is your portfolio truly risk less?

3. If a company beta were to double, would its expected return double?

4. In the real world,is it possible to construct a portfolio of stocks that has an expected return equal to the risk-free rate?

5.An individual has $35,000 invested in a stock with a bet of 0.8 and another $40,000 invested in a stock with a beta 1.4. If these are the only two investments in her portfolio, what is her portfolio beta

6. Assume that the risk rate is 6% and that the expected return on the market is 13%. What is the required rate of return on a stock that has a beta of 0.7

7. The market and stock j have the following probability distributions

probability Rm rj
0.3 15% 20%
0.4 9 5
0.4 18 12

a- calculate the expected rates of return for the market and stock j
b-calculate the standard deviations for the market and stock j
c-calculate the coefficients of variations for the market and stock j

8. Suppose you hold a diversified portfolio consisting of a $7,500 investment in each of 20 different common stocks. The portfolios beta is 1.12. Now, suppose you sell one of the stocks with a beta of 1.0 for $7,500 and use the proceeds to buy another stock whose beta is 1.75. Calculate the new beta of the portfolio.