Year $1$ Year $2$ Year $3$ Year $4$ Year $5$

Stock A returns $4\%3\%2\%6\%7\%$

Stock B returns $5\%6\%1\%6\%5\%$

Market returns $5\%6\%2\%7\%8\%$

Riskless asset returns $1\%1\%1\%1\%1\%$ The average return for stock A and stock B is closest to:

a$.2\mathrm{.}3\%$ and $4\mathrm{.}8\%,$ respectively.

b$.4\mathrm{.}4\%$ and $4\mathrm{.}6\%,$ respectively.

c$.4\mathrm{.}6\%$ and $4\mathrm{.}9\%,$ respectively.

d$.3\mathrm{.}2\%$ and $7\mathrm{.}8\%,$ respectively.

$6.$ The variance of stock A is closest to:

a$.2\mathrm{.}6\%.$

b$.8\mathrm{.}5\%.$

c$.1\mathrm{.}5\%.$

d$.4\mathrm{.}3\%.$

$7.$ The correlation of returns for stocks A and B is closest to:

a$.0\mathrm{.}87.$

b$.0\mathrm{.}61.$

c$.0\mathrm{.}12.$

d$.0\mathrm{.}57.$

$8.$ The market risk premium is closest to:

a$.1\%.$

b$.5\mathrm{.}60\%.$

c$.3\mathrm{.}25\%.$

d$.4\mathrm{.}60\%.$

$9.$ Use the CAPM. Beta and expected return of stock A are closest to:

a$.1\mathrm{.}00$ and $5\mathrm{.}05\%,$ respectively.

b$.0\mathrm{.}79$ and $4\mathrm{.}65\%,$ respectively.

c$.0\mathrm{.}65$ and $3\mathrm{.}25\%,$ respectively.

d$.1\mathrm{.}24$ and $5\mathrm{.}65\%,$ respectively.

Answer rating: 100% (QA)

Lets break down each question 6 Average Returns for Stock A and Stock B Average return for stock A 4 ... View the full answer