Chapter 2: Q9C. (page 145)
Use the following scenario analysis for stocks X and Y to answer CFA Questions
Question: Assume that of your \(10,000 portfolio, you invest \)9,000 in stock X and $1,000 in stock Y. What is the expected return on your portfolio?
The correct answer is: 9%
Over 30 million students worldwide already upgrade their learning with Vaia!
All the tools & learning materials you need for study success - in one app.
Get started for free
Which of the following most appears to contradict the proposition that the stock market is weakly efficient? Explain.
a. Over 25% of mutual funds outperform the market on average.
b. Insiders earn abnormal trading profits.
c. Every January, the stock market earns abnormal returns.
We know that the market should respond positively to good news and that good-news events such as the coming end of a recession can be predicted with at least some accuracy. Why, then, can we not predict that the market will go up as the economy recovers?
Two investment advisers are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of the first adviser was 1.5, while that of the second was 1.
a. Can you tell which adviser was a better selector of individual stocks (aside from the issue of general movements in the market)?
b. If the T-bill rate were 6% and the market return during the period were 14%, which adviser would be the superior stock selector?
c. What if the T-bill rate were 3% and the market return 15%?
Question: The stock of Business Adventures sells for $40 a share. Its likely dividend payout and end-of-year price depend on the state of the economy by the end of the year as follows:
a. Calculate the expected holding-period return and standard deviation of the holding period return. All three scenarios are equally likely.
b. Calculate the expected return and standard deviation of a portfolio invested half in Business Adventures and half in Treasury bills. The return on bills is 4%.
The security market line depicts:
a. A security’s expected return as a function of its systematic risk.
b. The market portfolio as the optimal portfolio of risky securities.
c. The relationship between a security’s return and the return on an index.
d. The complete portfolio as a combination of the market portfolio and the risk-free asset.
What do you think about this solution?
We value your feedback to improve our textbook solutions.
