, it offers an expected excess return of 2.2% excess return of 1.8% expected exc
ID: 2619140 • Letter: #
Question
, it offers an expected excess return of 2.2% excess return of 1.8% expected excess return of 2% in a"firm commitment," the investment banker A) agrees to help the firm sell the stock a 40) marketing arrange B) agrees to help the the C) buys the stock from the company a D) finds the best marketing gement for the investment banking firm. rm sell the stock at a favorable price. a favorable price and finds the bking firm company and resells the issue to the public rrangement for the investment banking firm. in 41) The Profitability Fund had NAV per share of S17.5 me distributions were 31 of the same year, the fund's NAV was $19.47. Income distributions were $0.75, and capital gain distributions of $1.00. Without considering taxes and costs, what rate of return did an investor receive on the Profitability Fund last year? E) 9.83% A) 15.54% C)16.97% D) 11.26% B)21.26% paying a 4% rate of return. A risk-averse investor with a risk aversion invest entirely in a risky portfolio with a standard deviation of 24% only 42) 42) Treasury bills are a of A -3 should if the risky portfolio's expected return is at least D) 8.67% C) 9.84% A) 2 1.28% B) 14.68% A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of 43 return of24%, while stock B has a standard deviation of return of 18 %. Stock A comprises 60% of the portfolio, while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is.0380, the correlation coefficient between the returns on A and B is D) .327 C).128 B) .225 A).583 ) You sold JCP stock short at $80 per share. Your losses could be minimized by placing a A) day-order B) limit-buy order. C) limit-sell order. D) stop-buy order E) None of the options A-7Explanation / Answer
1.
Option C
2.
=(1+0.75+19.47)/17.5-1=21.26%
3.
Let x be the return of risky asset
Utility in Tbills=4%-0
Utility in risky asset=x-0.5*3*(24%)^2
Hence,
x-0.5*3*(24%)^2 > 4%
=>x > 12.64%
Option B
4.
0.0380=(60%*24%)^2+(40%*18%)^2+2*60%*40%*24%*18%*correl
=>correl=0.583
5.
Option D
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