1. Year-to-date, Oracle had earned a โ1.46 percent return. During the same time period, Valero Energy earned 7.86 percent and McDonald’s earned 0.56 percent.

If you have a portfolio made up of 35 percent Oracle, 30 percent Valero Energy, and 35 percent McDonald’s, what is your portfolio return? (Round your answer to 2 decimal places.)

Portfolio return %

2. A Treasury bond that you own at the beginning of the year is worth $1,050. During the year, it pays $38 in interest payments and ends the year valued at $1,060.

What was your dollar return and percent return? (Round your “Percent return” to 2 decimal places.)

Dollar return $

Percent return %

3. Rank the following three stocks by their level of total risk, highest to lowest. Rail Haul has an average return of 13 percent and standard deviation of 28 percent. The average return and standard deviation of Idol Staff are 16 percent and 32 percent; and of Poker-R-Us are 10 percent and 40 percent.

Rank Stock

1

2

3

(Rail Haul, Poker-R-Us, Idol Staff)

4. Rank the following three stocks by their total risk level, highest to lowest. Night Ryder has an average return of 8 percent and standard deviation of 29 percent. The average return and standard deviation of WholeMart are 9 percent and 35 percent; and of Fruit Fly are 14 percent and 32 percent.

Rank Stock

1

2

3

________________________________________

(Night Ryder, WholeMart, Fruit Fly)

5.

6. Suppose the NASDAQ stock market bubble peaked at 5,225 in 2000. Two and a half years later it had fallen to 1,110. What was the percentage decline? (Negative answer should be indicated with a minus sign. Round your answer to 2 decimal places.)

Market decline %

7. The average annual return on an Index from 1996 to 2005 was 13.04 percent. The average annual T-bill yield during the same period was 3.64 percent.

What was the market risk premium during these ten years? (Round your answer to 2 decimal place.)

Average market risk premium %

8. Suppose Netflix, Inc., has a beta of 3.88. If the market return is expected to be 8.00 percent and the risk-free rate is 2.50 percent, what is Netflix’ risk premium? (Round your answer to 2 decimal places.)

Netflix’ risk premium %

9. Compute the expected return given these three economic states, their likelihoods, and the potential returns: (Round your answer to 2 decimal places.)

Economic State Probability Return

Fast growth 0.24 36 %

Slow growth 0.36 11

Recession 0.40 โ28

________________________________________

Expected return %

10. You have a portfolio with a beta of 1.49. What will be the new portfolio beta if you keep 88 percent of your money in the old portfolio and 12 percent in a stock with a beta of 0.58? (Do not round intermediate calculations and round your answer to 2 decimal places.)

New portfolio beta

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