assignment 3

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Trent University *

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Course

5220H

Subject

Finance

Date

Apr 3, 2024

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pdf

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8

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¥ Question Completion Status: T NCT 1CTOL. MNOOCTOJIITICITHIU T Test Information Description Instructions Multiple Attempts Force Completion This is the third of five online assessments you will receive during this course. As outlined in the course syllabus, the score you receive on this assessment will account for 7% of your final grade. This Third Assessment consists of 25 multiple choice questions and draws from material that we discussed during Weeks 5 and 6 of lecture. This assessment primarily focuses on Chapter 10 ("Capital Markets and the Pricing of Risk") and selected topics From Chapter 11 ("Optimal Portfolio Choice and the Capital Asset Pricing Model"), specifically: - 11.1 - The Expected Return of a Portfolio - 11.2 - The Volatility of a Two-Stock Portfolio Good luck! Please complete and submit the Third Assessment by 11:59 pm Eastern on Friday February 23, 2024. Assessment grading and feedback will be made available to all students after the due date has passed. Not allowed. This test can only be taken once. This test can be saved and resumed later. Your answers are saved automatically. QUESTION 1 1 points Saved Common risk is also called: O firm-specific risk. market risk. O independent risk. O diversifiable risk. QUESTION 2 1 points Saved Suppose that KAN's beta is 1.5. If the market risk premium is 8% and the risk- free interest rate is 4%, then the expected return for KAN stock is? O 13.5% O 8.0% 16.0% O 10.0%
(J $9Y5,000,0U0U. Use the following information to answer the problem(s) below. Consider two banks. Bank A has 1000 loans outstanding each for $100,000, that it expects to be fully repaid today. Each of Bank A's loans have a 6% probability of default, in which case the bank will receive $0 for each of the defaulting loans. Bank B has 100 loans of $1 million outstanding, which it also expects to be fully repaid today. Each of Bank B's loans have a 5% probability of default, in which case the bank will receive $0 for each of the defaulting loans. The chance of default is independent across all the loans. The expected overall payoff to Bank A is: $94,000,000. O $6,000,000. (O $5,000,000. QUESTION 4 1 points Use the following information to answer the question(s) below. Company | Ticker | Beta Ford Motor Company | F | 277 International Business Machines| IBM | 0.73 Merck | MRK | 0.90 If the market risk premium is 6% and the risk-free rate is 4%, then the expected return of investing in Ford Motor Company is closest to: O 10.0%. O 17.1%. 20.6%. O 16.2%. QUESTION 5 1 points Use the following information to answer the question(s) below. Company | Ticker | Beta Ford Motor Company | F | 277 International Business Machines| I1BM | 0.73 Merck | MRK | 0.90 If the expected return on the market is 11% and the risk-free rate is 4%, then the expected return of investing in IBM is closest to: O 11.0%. O 10.3%. ® 9.1%. O 12.0%. QUESTION 6 1 points Use the following information to answer the question(s) below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down Sy A~~~y 1 a1l T Y B B N S a1 o 1 1 Saved Saved Saved
The beta for security "X" is closest to: O 1.00. O 0.80. 1.25. O o. QUESTION 7 1 points Use the following information to answer the question(s) below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. The beta for security "Z" is closest to: O 0.25. O -1.00. O -0.25. @ 0.00. QUESTION 8 1 points Use the following information to answer the question(s) below. Suppose that the market portfolio is equally likely to increase by 24% or decrease by 8%. Security "X" goes up on average by 29% when the market goes up and goes down by 11% when the market goes down. Security "Y" goes down on average by 16% when the market goes up and goes up by 16% when the market goes down. Security "Z" goes up on average by 4% when the market goes up and goes up by 4% when the market goes down. The risk-free rate is closest to: 4%. O 16%. O 0%. O 8%. QUESTION 9 1 points Use the information for the question(s) below. Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster” drug before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has 10 separate less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $100 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. Saved Saved Saved
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