Answer

Question:

Part A.

Question 1

Security A has expected return of 17.6% and beta of 1.4. If the risk-free rate is 6%, what is the reward-to-risk rate for Security A?

Enter your answer as a percentage rounded off to two decimal points. Do not enter % in the answer box.

Question 2

The common stock of Detroit Engines has a beta of 1.3 and expected returns of 14.44 percent. The risk-free rate is 4.43 percent. What is the expected return on the market?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Question 3

Security A has expected return of 14% and beta of 1.60. Security B has expected return of 10% and beta of 0.80. What would hte risk-free rate have to be for the two stocks to be correctly priced relative to each other?

Enter your answer as percentage rounded off to two decimal points. Do not enter % in the answer box.

Question 4

You own a portfolio invested 14.31% in Stock A, 19.64% in Stock B, 20.71% in Stock C, and the remainder in Stock D. The beta of these four stocks are 1.31, 0.2, 0.99, and 1. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

Question 5

Suppose you have a portfolio where you have invested $9882 in Stock A and Stock B. Stock A has an expected return of 14.2% and Stock B has an expected return of 4.1%. If your goal is to create portfolio with an expected return of 10.7%, what is your dollar investment in Stock A?

Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

Question 6

Portfolio diversification eliminates which one of the following?

Market risk

Reward for bearing risk

Portfolio risk premium

Unsystematic risk

Total investment ris

Question 7

A portfolio is invested 31.1% in Stock A, 16.5% in Stock B, and the remainder in Stock C. The expected returns are 18.8%, 30.7%, and 9.2% respectively. What is the portfolio's expected returns?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

Question 8

The common stock of Detroit Engines has a beta of 1.8 and expected returns of 14.4 percent. The risk-free rate is 4.81 percent. What is the expected return on the market?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

Question 9

If the expected return on Stock A is 13.46% and the return on the market is 7%. What is the beta for Stock A if the risk-free rate is 3%?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. D0 not enter % in the answer box.

Question 10

Suppose your portfolio consists of Stock A and Stock B. Stock A has an expected return of 16.3% and Stock B has an expected return of 6.7%. If your goal is to create portfolio with an expected return of 8.8%, what is your weight in Stock A?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 11

Given the investment in Stocks A, B, and C, compute the portfolio beta. Enter your answer rounded off to two decimal points

Stock Investment Beta

A $1800 1.44

B $2400 1.58

C $3400

0.92

Question 12

Given the investment in Stocks A, B, and C, compute the expected return on the portfolio. Enter your answer in percentages, rounded off to two decimal points. Do not enter % in the answer box.

Stock Investment Exp Returns

A $1500 8%

B $2000 4%

C $2500 -2%

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Question 13

The common stock of Detroit Engines has a beta of 1.84. The expected return on the market is 11 percent and the risk-free rate is 3 percent. What is the firm's expected return, E(Ri)?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 14

A portfolio contains 161 shares of Stock A that sell for $42 each, 306 shares of Stock B that sell for $95 each and 55 shares of Stock C that sell for $61 each. What is the portfolio expected return if the expected returns on these stocks is 14.9%, 11.1%, and 7.9% respectively?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 15

The common stock of Detroit Engines has a beta of 1.54 and expected returns of 14.54 percent. The expected return on the market is 3.31 percent. What is the risk-free rate?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 16

Suppose your portfolio consists of Stock A and Stock B. Stock A has an expected return of 18.5% and Stock B has an expected return of 4.2%. If your goal is to create portfolio with an expected return of 12.6%, what is your weight in Stock B?

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 17

You want a portfolio as risky as the market. Given the information below, compute the weight of the risk-free asset.

Enter your answer in percentages, rounded off to two decimal points. Do not enter % in the answer box.

Asset Investment Beta

Stock A 40.00% 1.4

Stock B 25.00% 0.9

Stock C ? 2.25

Risk-free asset ? ?

Question 18

Given the data below, compute the standard deviation for stock A. Enter your answer in percentages rounded off to two decimal points.Do not enter % in the answer box.

Event Probability Returns

Pessimistic 30% 12%

Most Likely 45% -15%

Optimistic 25% 5%

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Question 19

Stock A has a beta of 0.5. The risk-free asset has a beta of zero. The portfolio of these two securities has a beta of 0.8, what is the weight of Stock A in the portfolio?

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 20

Suppose you have a portfolio where you have invested $15515 in Stock A and Stock B. Stock A has an expected return of 19.6% and Stock B has an expected return of 6.3%. If your goal is to create portfolio's with an expected return of 10.1%, what is your dollar investment in Stock B?

Note: Enter your answer rounded off to two decimal points. Do not enter $ in the answer box. For example, if your answer is $12.345 then enter as 12.35 in the answer box.

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Question 21

Given the data below, compute the standard deviation for stock A. Enter your answer in percentages rounded off to two decimal points.Do not enter % in the answer box.

Event Probability Returns

Pessimistic 25% 13%

Most Likely 50% 15%

Optimistic 25% 17%

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Question 22

Stock Y has an expected return of 14% and beta of 1.80. Stock Z has an expected return of 11.50% and beta of 1.10. If the risk-free rate is 3.5% and the market risk premium is 6.5%, which security is overvalued?

Stock Y, because it plots below the SML

Stock Z, because it plots below the SML

Stock Z, because it plots above the SML

Stock Y, because it plots above the SML

No answer text provided.

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Question 23

ABC Inc.'s stock has a 40% chance of producing a 8.6% return, a 25% chance of producing a 11.2% return, and a 35% chance of producing a 21.7% return. What is ABC Inc's expected return?

Enter your answer in percentages rounded off to two decimal points. Do not type % in the answer box.

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Question 24

The common stock of ABC has a beta of 1.22. The market risk premium is 10.7 percent and the risk-free rate is 3.1 percent. What is the firm's expected return, E(Ri)?

Hint: Use the CAPM equation to get the answer.

Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box.

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Question 25

You own a portfolio invested 28.44% in Stock A, 14.81% in Stock B, 27.19% in Stock C, and the remainder in Stock D. The beta of these four stocks are 0.78, 1.14, 0.34, and 1.04. What is the portfolio beta?

Note: Enter your answer rounded off to two decimal points. For example, if your answer is 12.345 then enter as 12.35 in the answer box.

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Question 26

Given the data below, compute the standard deviation for stock B. Enter your answer in percentages rounded off to two decimal points.Do not enter % in the answer box.

Event Probability Returns

Pessimistic 25% 7%

Most Likely 50% 15%

Optimistic 25% 23%

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Question 27

Calculate the expected returns of your portfolio

Stock Invest Exp Ret

A

$301

2.6%

B $649 19.9%

C $497 28%

Note: Enter your answer in percentages rounded off to two decimal points. Do not enter % in the answer box. For example, if your answer is 12.345% then enter as 12.35 in the answer box.

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Question 28

You have invested 29% in Stock A, 33.2% in Stock B, and the remainder in the risk free asset. You want a portfolio to be as risky as the market (i.e. you want the beta of your portfolio to equal 1). If Stock A has beta of 0.7, what is the beta of Stock B

s. Mr. Jabir and Mr. Shanavas are in partnership, sharing profit and losses in the ratio 3:2. The following Trial Balance was extracted after the preparation of their Trading Account for the year ended 31 December 2017: Trial Balance as on 31 December 2017 Account Name Dr. Balance Cr. Balance (OMRI Gross Profit 15.060 Commission Received 900 Insurance Expenses Wages and Salaries Capital Accounts : Jabir's Capital Shanavas's Capital 20 600 Cash & Bank Balance Furniture at cost Provision for depreciation Furniture 1.400 Equipment at cost Provision for depreciation Equipment Plant & Machinery 30 060 Provision for Depreciation Debtors and Creditors 17.080 Total 82-160 At 31 December the following information needs to be taken into consideration: a) Insurance expense includes an amount OMR 300, which is prepaid. bj Depreciation is to be provided on Furniture, Equipment and Plant & Machinery at 10% (reducing balance method) c) Wages and salaries OMR 480 is outstanding. d A provision for doubtful debtors is to be created at 2.5% on debtors. . The partnership agreement provides for the following: 1. Interest on capital is allowed at 6 % per annum 2. Mr. Shanavas is to receive an annual salary of OMR 1,200. You are required to: . Prepare the Income Statement (Profit and Loss Account) of the partnership firm for the year ended 31 December 2017. . Prepare the Profit and Loss Account AppropriationComplete the following table, indicating with a tick (V) where each item appears. Income statement Balance sheet Profit and Trading loss account Account Net profit Closing stock Rent Furniture Sales & Sales returns Purchases Opening stock Gross profit Capital & Drawings Bills payables Omar and Rabee are partners sharing profits and losses in the ratio of 1:5. They admit Saleem for a seventh share. Calculate the new ratio and sacrificing ratio. Page 3 of 5