Finance II

EPGP 10
Kochi Campus
Quiz -1

Roll No.

Name

Instructions

8
 Finance II
EPGP 10
Kochi Campus
Quiz -1

Instructions

Answer all questions

This is a closed book examination

Read the questions carefully before answering. Be precise and to the point.

Save the answer template on your machine

All questions are self-explanatory. Do not seek any clarifications. Make reasonable & valid
assumptions wherever necessary and state them clearly.
The answer sheet (excel sheet) must be saved in the folloiwng format using your registraiton
number <registration numbe.xls>

The saved answer sheet should be submitted on the moodle page Quiz 1 link.

ALL THE BEST !

Max Marks 40

Time 30 minutes
 PART - A
Questions Marks (20*2=40)
Question
Number MULTIPLE CHOICE - Choose the one alternative that best completes the statement or

Today, you sold 300 shares of SLG stock and realized a total return of 12.5 percent. You pu
year ago at a price of $27.43 a share. You have received a total of $192 in dividends. What
on this investment?
A) 14.80 percent
B) 9.39 percent
1 C) 6.67 percent
D) 10.17 percent

Eight months ago, you purchased 400 shares of Winston stock at a price of $46.40 a share.
quarterly dividends of $1.05 a share. Today, you sold all your shares for $48.30 a share. W
percentage return on this investment?
A) 10.12 percent
2 B) 4.09 percent
C) 8.62 percent
D) 12.08 percent

One year ago, you purchased 300 shares of IXC stock at a price of $22.05 per share, receiv
the year, and today sold all your shares for $29.32 per share. What was your dividend yield
A) 5.23 percent
3
B) 5.87 percent
C) 6.95 percent
D) 1.92 percent

Three years ago, you purchased a stock at a price of $33.48. The stock paid annual dividen
Today, the stock is worth $35.20 per share. What is your holding period return?
A) 10.03 percent
B) 6.93 percent
4 C) 10.51 percent
D) 5.14 percent

Assume that over the last several decades, the total annual returns on large-company com
12.1 percent, small-company stocks averaged 16.5 percent, long-term government bonds
U.S. T-bills averaged 3.4 percent. What was the average excess return earned by long-term
small-company stocks respectively?
A) 1.8 percent; 13.3 percent
5 B) 2.6 percent; 13.1 percent
C) 2.6 percent; 4.4 percent
D) 1.9 percent; 5.1 percent
 A stock had returns of 9 percent, −6 percent, 4 percent, and 16 percent over the past four
standard deviation of these returns?
A) 8.56 percent
B) 6.67 percent
6 C) 7.14 percent
D) 9.25 percent

A stock had returns of 16 percent, 4 percent, −22 percent, 15 percent, and −2 percent for
is the variance of these returns?
A) .01997
B) .02037
7 C) .02402
D) .01869

The capital gains yield plus the dividend yield on a security is called the:
A) variance of returns.
B) average period return
8 C) current yield.
D) total return

The average squared difference between the actual return and the average return is called
A) volatility return.
B) variance.
9 C) standard deviation.
D) risk premium

The excess return is computed by ______ the average return for the investment.
A) subtracting the inflation rate from
B) adding the inflation rate to
10 C) subtracting the average return on the Treasury bill from
D) adding the average return on the Treasury bill to

You recently purchased a stock that is expected to earn 12.6 percent in a booming econom
normal economy, and lose 5.2 percent in a recessionary economy. Each economic state is
What is your expected rate of return on this stock?
A) 6.47 percent
11 B) 8.90 percent
C) 5.43 percent
D) 7.65 percent
 You are comparing Stock A to Stock B. Stock A will return 9 percent in a boom and 4 perce
will return 15 percent in a boom and lose 6 percent in a recession. The probability of a boo
the chance of a recession is 40 percent. Given this information, which one of these two sto
and why?
A) Stock A; because it has a higher expected return and appears to be more risky than Sto
B) Stock A; because it has a higher expected return and appears to be less risky than Stoc
12 C) Stock A; because it has a slightly lower expected return but appears to be significantly
D) Stock B; because it has a higher expected return and appears to be just slightly more r

A portfolio is entirely invested into BBB stock, which is expected to return 16.4 percent, an
expected to return 8.6 percent. Stock BBB comprises 48 percent of the portfolio. What is t
the portfolio?
13 A) 13.64 percent
B) 14.36 percent
C) 12.34 percent
D) 14.22 percent

The probability of the economy booming is 10 percent, while it is 60 percent for being nor
being recessionary. A stock is expected to return 16 percent in a boom, 11 percent in a no
percent in a recession. What is the standard deviation of the returns?
A) 5.80 percent
14 B) 7.34 percent
C) 8.38 percent
D) 9.15 percent

The risk premium for an individual security is computed by:

A) multiplying the security's beta by the market risk premium.
B) multiplying the security's beta by the risk-free rate of return.
15 C) adding the risk-free rate to the security's expected return.
D) dividing the market risk premium by the quantity (1 + β)

The systematic risk of the market is measured by a:

A) beta of 1.0.
B) beta of zero.
16 C) standard deviation of 1.0.
D) standard deviation of zero.

Unsystematic risk:
A) can be effectively eliminated through portfolio diversification.
B) is compensated for by the risk premium.
17 C) is measured by beta.
D) cannot be avoided if you wish to participate in the financial markets.

Standard deviation measures _____ risk while beta measures ____ risk.
A) total; systematic
B) nondiversifiable; diversifiable
18 C) unsystematic; total
D) unsystematic; systematic
 One example of a nondiversifiable risk is the sudden:
A) resignation of a well-respected president of a firm.
B) sudden resignation of the chairman of the Reserve Bank of India.
19 C) resignation of a key employee of a major manufacturer.
D) replacement of a firm's workforce with robots.

Stock A has a beta of 1.2, Stock B's beta is 1.46, and Stock C's beta is .72. If you invest $2,0
Stock B, and $5,000 in Stock C, what will be the beta of your portfolio?
A) 1.008
B) 1.014
20 C) 1.038
D) 1.067
 PART - A
Marks (20*2=40)

Your Answer
mpletes the statement or answers the question.

urn of 12.5 percent. You purchased the shares one

of $192 in dividends. What is your capital gains yield

at a price of $46.40 a share. The company pays

ares for $48.30 a share. What is your total

of $22.05 per share, received $460 in dividends over

hat was your dividend yield?

e stock paid annual dividends of $.60 per share.

g period return?

urns on large-company common stocks averaged

g-term government bonds averaged 6 percent, and
return earned by long-term government bonds, and
percent over the past four years. What is the

ercent, and −2 percent for the past five years. What

lled the:

the average return is called the:

r the investment.

rcent in a booming economy, 8.9 percent in a

my. Each economic state is equally likely to occur.
ent in a boom and 4 percent in a recession. Stock B
on. The probability of a boom is 60 percent while
which one of these two stocks should you prefer

rs to be more risky than Stock B

rs to be less risky than Stock B
appears to be significantly less risky than Stock B
rs to be just slightly more risky than Stock A

d to return 16.4 percent, and ZI bonds, which are

t of the portfolio. What is the expected return on

is 60 percent for being normal, and 30 percent for

a boom, 11 percent in a normal economy, and lose 8
turns?

n.

on.

l markets.

___ risk.
India.

eta is .72. If you invest $2,000 in Stock A, $3,000 in

rtfolio?