FIN 301 Exam 3 Canvas Exam Questions
with Complete Solutions
Which of the following asset classes would you expect to have the highest expected
return and standard deviation?
Treasury bills
Government bonds
Corporate bonds
Large company stocks
Small company stocks - Answer-Small company stocks
Calculate the compound annual return on an investment that was purchased at $20 and
sold 5 years later for $40.
14.9%
100%
20%
4.6%
16.8% - Answer-14.9%
Given the following information, calculate the Fund's alpha:
T-Bill Return: 2%
S&P 500 Return: 10%
Beta: 1.25
Fund's Return: 15%
5%
-3%
2%
3% - Answer-3%
The ________ helps us to predict the expected return of a risky asset.
Weighted Average Cost of Capital
Capital Asset Pricing Model
Capital Structure Model
Risk/Return Model
Rational Investor Risk Model - Answer-Capital Asset Pricing Model
If the market returns 8%, PennCo's stock returns 12%, if the market returns -8%,
PennCo's stock returns -12%. What is PennCo's Beta?
0.4
0.66
1.4
1.5
0.33 - Answer-1.5
,Calculate the rate of return on an investment that you bought for $50, received a $3
dividend, and sold one year later for $55?
10%
5.5%
14.5%
9%
16% - Answer-16%
Calculate the standard deviation of stock PSU over the last three years. Year 1: 10%,
Year 2: -3%, Year 3: 5%
0.58%
0.70%
1.17%
3.54%
6.55% - Answer-6.55%
True or False: A rational investor will require a higher return on treasury bonds than
stocks. - Answer-False
There is an indirect relationship between risk and return. - Answer-False
Calculate security ABC's expected return using the capital asset pricing model. Risk
Free Rate: 5%, Market Return: 15%, Beta: 1.5
10%
15%
17%
20%
25% - Answer-20%
True:A fund's positive net investment performance versus its benchmark index is a good
indicator of positive future performance. - Answer-False
What is the expected return of an investment if the market return is 12%, the risk free
rate is 5%, and the investment's Beta is 1.2?
13.4%
14.4%
8.4%
6.0%
12.0% - Answer-13.4%
Calculate the firm's expected return: S&P 500: 15%, T-Bills: 4%, Beta: 1.5
10.5%
13.5%
16.5%
20.5%
22.5% - Answer-20.5%
, Which of the following analysts do not agree with weak form market efficiency?
Fundamental analysts
Investment bankers
Mutual fund managers
Technical analysts
Hedge fund analysts - Answer-Technical analysts
In an efficient capital market, stock prices react to news ______ and _________.
Gradually; randomly
Immediately; based on historical trends
Immediately; randomly
Gradually; with changes in earnings
Gradually; based on historical trends - Answer-Immediately, randomly
Which of the following types of risk can be diversified away?
Market risk
Systematic risk
Unsystematic risk
Market premium risk
Systemic risk - Answer-Unsystematic risk
Which of the following forms of efficient markets is characterized by stock prices
reflecting all publically available information?
Weak Form
Semi-strong Form
Strong Form
Random Form
Independent Form - Answer-Semi-strong form
A fund that invested based on the strategies put forth in the Fama and French study
would typically invest in:
Assets with high Beta's
Assets with low P/E ratios
International stocks
It doesn't matter because all information is taken into consideration
Large cap stocks - Answer-Assets with low P/E ratios
What is the calculation for the market risk premium?
Beta minus Risk Free Rate
Market Return times Beta
Beta times Risk Free Rate
Market Return minus Beta
Market Return minus Risk Free Rate - Answer-Market return minus risk free rate
with Complete Solutions
Which of the following asset classes would you expect to have the highest expected
return and standard deviation?
Treasury bills
Government bonds
Corporate bonds
Large company stocks
Small company stocks - Answer-Small company stocks
Calculate the compound annual return on an investment that was purchased at $20 and
sold 5 years later for $40.
14.9%
100%
20%
4.6%
16.8% - Answer-14.9%
Given the following information, calculate the Fund's alpha:
T-Bill Return: 2%
S&P 500 Return: 10%
Beta: 1.25
Fund's Return: 15%
5%
-3%
2%
3% - Answer-3%
The ________ helps us to predict the expected return of a risky asset.
Weighted Average Cost of Capital
Capital Asset Pricing Model
Capital Structure Model
Risk/Return Model
Rational Investor Risk Model - Answer-Capital Asset Pricing Model
If the market returns 8%, PennCo's stock returns 12%, if the market returns -8%,
PennCo's stock returns -12%. What is PennCo's Beta?
0.4
0.66
1.4
1.5
0.33 - Answer-1.5
,Calculate the rate of return on an investment that you bought for $50, received a $3
dividend, and sold one year later for $55?
10%
5.5%
14.5%
9%
16% - Answer-16%
Calculate the standard deviation of stock PSU over the last three years. Year 1: 10%,
Year 2: -3%, Year 3: 5%
0.58%
0.70%
1.17%
3.54%
6.55% - Answer-6.55%
True or False: A rational investor will require a higher return on treasury bonds than
stocks. - Answer-False
There is an indirect relationship between risk and return. - Answer-False
Calculate security ABC's expected return using the capital asset pricing model. Risk
Free Rate: 5%, Market Return: 15%, Beta: 1.5
10%
15%
17%
20%
25% - Answer-20%
True:A fund's positive net investment performance versus its benchmark index is a good
indicator of positive future performance. - Answer-False
What is the expected return of an investment if the market return is 12%, the risk free
rate is 5%, and the investment's Beta is 1.2?
13.4%
14.4%
8.4%
6.0%
12.0% - Answer-13.4%
Calculate the firm's expected return: S&P 500: 15%, T-Bills: 4%, Beta: 1.5
10.5%
13.5%
16.5%
20.5%
22.5% - Answer-20.5%
, Which of the following analysts do not agree with weak form market efficiency?
Fundamental analysts
Investment bankers
Mutual fund managers
Technical analysts
Hedge fund analysts - Answer-Technical analysts
In an efficient capital market, stock prices react to news ______ and _________.
Gradually; randomly
Immediately; based on historical trends
Immediately; randomly
Gradually; with changes in earnings
Gradually; based on historical trends - Answer-Immediately, randomly
Which of the following types of risk can be diversified away?
Market risk
Systematic risk
Unsystematic risk
Market premium risk
Systemic risk - Answer-Unsystematic risk
Which of the following forms of efficient markets is characterized by stock prices
reflecting all publically available information?
Weak Form
Semi-strong Form
Strong Form
Random Form
Independent Form - Answer-Semi-strong form
A fund that invested based on the strategies put forth in the Fama and French study
would typically invest in:
Assets with high Beta's
Assets with low P/E ratios
International stocks
It doesn't matter because all information is taken into consideration
Large cap stocks - Answer-Assets with low P/E ratios
What is the calculation for the market risk premium?
Beta minus Risk Free Rate
Market Return times Beta
Beta times Risk Free Rate
Market Return minus Beta
Market Return minus Risk Free Rate - Answer-Market return minus risk free rate
