Quiz Module 9 ?s

Question 1

An investment portfolio has a 30% chance of earning $125,000 in a year, a 40% chance of earning $50,000, a 15% chance of earning nothing and 15% chance of losing $20,000. What is its expected return?

$50,000

$62,000

$38,750

$54,500

Answer 1

$54,500

Question 2

A portfolio has $70,000 of bonds and $30,000 of stock. The bonds are 80% likely to have a 10% return and 20% likely to have a 0% return. The stock is 50% likely to have a 20% return and 50% likely to have a 10% loss. What is the expected return?

5.9%

13%

2. 9%
3. 1%

Answer 2

7.1%

Question 3

A company issues a bond with the provision that it may pay off the debt early. Which type of risk is this bond subject to?

Prepayment risk

Model risk

Asset-backed risk

Foreign investment risk

Answer 3

Prepayment risk

Question 4

The most common measure of risk in finance is the…

standard outcome
standard deviation
expected outcome
expected return

Answer 4

standard deviation

Question 5

A portfolio is composed of 30% stock, 20% bonds, and 50% mutual funds. The stock is expected to have a 10% return, the bonds a 5% return and the mutual funds a 7% return. What is the expected return of the portfolio?

7. 5%
8. 3%
9. 1%

7%

Answer 5

7.5%