FIN 421 MIDTERM EXAM FALL 2020 QUESTIONS AND ANSWERS
ARISONA STATES UNIVERSITY
Midterm Exam
FIN 421
Fall 2020
Name:
Student ID:
Section: 70853 (T/TH 1:30pm) 85577 (T/TH 3pm)
Part I / 60
Part II / 40
Total / 100
• You have 80 minutes to complete this exam: 60 minutes for answering questions and
20 minutes for uploading solutions.
• You are allowed to use a calculator. A formula sheet is provided on the last page.
• You are to answer these questions without consulting anyone or anything besides the
formula sheet, your calculator, and your own knowledge.
• Answers can be typed or handwritten, but be sure they are labeled and legible.
• Show your work wherever necessary.
• Manage your time wisely. Shorter answers are often better.
, 1. Your portfolio had real net returns of 5% in 2014, −4% in 2015, and 2% in 2016. The net
inflation rate for each period was 2% in 2014, 4% in 2015, and −1% in 2016. What is the
gross, nominal, compound return of your portfolio over those three years?
A) 6.05%
B) 2.82%
C) 1.09%
D) −3.05%
E) 9.04%
2. For a single factor model of returns, given by ri,t = αi + βi Ft + ϵi,t , which of the following
assumptions do we make?
1 E[ϵi,t |Ft ] = 0
2 αi = 0 for all assets
3 var(αi ) < 0
4 Corr(ϵi,t , Ft ) = 0 for all i, t
A) both 1 and 4, but not 2 and 3
B) both 2 and 3, but not 1 and 4
C) only 1
D) we make all of these assumptions
E) none of the above
2
ARISONA STATES UNIVERSITY
Midterm Exam
FIN 421
Fall 2020
Name:
Student ID:
Section: 70853 (T/TH 1:30pm) 85577 (T/TH 3pm)
Part I / 60
Part II / 40
Total / 100
• You have 80 minutes to complete this exam: 60 minutes for answering questions and
20 minutes for uploading solutions.
• You are allowed to use a calculator. A formula sheet is provided on the last page.
• You are to answer these questions without consulting anyone or anything besides the
formula sheet, your calculator, and your own knowledge.
• Answers can be typed or handwritten, but be sure they are labeled and legible.
• Show your work wherever necessary.
• Manage your time wisely. Shorter answers are often better.
, 1. Your portfolio had real net returns of 5% in 2014, −4% in 2015, and 2% in 2016. The net
inflation rate for each period was 2% in 2014, 4% in 2015, and −1% in 2016. What is the
gross, nominal, compound return of your portfolio over those three years?
A) 6.05%
B) 2.82%
C) 1.09%
D) −3.05%
E) 9.04%
2. For a single factor model of returns, given by ri,t = αi + βi Ft + ϵi,t , which of the following
assumptions do we make?
1 E[ϵi,t |Ft ] = 0
2 αi = 0 for all assets
3 var(αi ) < 0
4 Corr(ϵi,t , Ft ) = 0 for all i, t
A) both 1 and 4, but not 2 and 3
B) both 2 and 3, but not 1 and 4
C) only 1
D) we make all of these assumptions
E) none of the above
2
