7) Consider stock 1 and 2, whose standard deviations are respectively 8% and 10%, while their correlation is 0.4. The standard deviation of a portfolio invested 30% in stock 1 and 70% in stock 2 is: A) 7.84% B) 0.68% C) 8.26% D) 9.53% 8) The current annual interest rates for the following maturities are: 12 months =0.4%; 2 years = 1%. According to the expectations theory, what's the 1 year expected interest rate within 1 year (E(R))? A) 1.60% B) 0.60% C) 101.60% D) 0.70% 9) The covariance of the returns of the two stocks, A and B is -0.0005. The standard deviation of stock A is 4% and the standard deviation of stock B is 6%. What is the correlation between the returns of A and B? A) -0.7917 B)-0.2083 C) 0.2083 D) 0.02083 201 10 10) The relationship between - and ---------- is described by the security market line. A) Total return ... total risk B) Expected return ... total risk C) Total retur ... systematic risk D) Expected return ... systematic risk 11) The portfolios on the efficient frontier dominate all other portfolios because given a specific level of expected return, A) They maximize risk B) They minimize risk C) They maximize standard deviation D) They carry minimal systematic risk A. A study was done to determine whether the gender of the credit card holder was an important factor in generating profit for a certain credit card company. The variables considered were income, the number of family members, and the gender of the card holder. The data are given in the table below: profit income gender members 1 157.00 45000.00 M 1 2 -181.00 55000.00 M 2 3 -253.00 45800.00 M 4 4 158.00 38000.00 M 3 5 75.00 75000.00 M 4 6 202.00 99750.00 M 4 7 451.00 28000.00 M 1 146.00 39000.00 M 2 9 89.00 54350.00 M 10 -357.00 32500.00 M 11 522.00 36750.00 F 12 78.00 42500.00 F 3 13 5.00 34250.00 F 2 14 -177.00 36750.00 F 3 15 123.00 24500.00 F 2 16 251.00 27500.00 F 17 -56.00 18000.00 F 18 453.00 24500.00 F 19 288.00 88750.00 F 20 -104.00 19750.00 F 2 8 1 1 1 (a) Fit a linear regression model using the available variables. Based on the fitted model, would the company prefer male or female customers? (b) Would you say that income was an important factor in explaining the variability in profit? (c) What can you say about the goodness of fit of the model