FIN 320: Chapter Eight (Risk
and Rates of Return) Exam
Questions with Correct
Answers
Based on your understanding of P/E ratios, in which of the following situations would the average
trailing P/E ratio (current price divided by earnings per share over the previous 12 months) of the S&P
500 Index be higher? - Correct Answers: The outlook for the economy and the markets is for an
improvement.
You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). To which kind of risk will
you primarily be exposed? - Correct Answers: Portfolio risk
Generally, investors would prefer to invest in assets that have: - Correct Answers: A higher-than-average
expected rate of return given its perceived risk.
Tyler owns a two-stock portfolio that invests in Falcon Freight Company (FF) and Pheasant
Pharmaceuticals (PP). Three-quarters of Tyler's portfolio value consists of FF's shares, and the balance
consists of PP's shares. - Correct Answers: Strong: 0.20, 27.5%, 38.5%
Normal: 0.35, 16.5%, 22%
Weak: 0.45, -22%, -27.5%
The expected rate of return on Falcon Freight's stock over the next year is ___. - Correct Answers: 1.38%
The expected rate of return on Pheasant Pharmaceuticals's stock over the next year is ___. - Correct
Answers: 3.02%
The expected rate of return on Tyler's portfolio over the next year is ___. - Correct Answers: 1.79%
Company G = Orange, tall, thin
Company H = Green, short, wide
, Based on the graph's information, which statement is false? - Correct Answers: Company H has lower
risk.
Ethan owns a two-stock portfolio that invests in Celestial Crane Cosmetics Company (CCC) and
Lumbering Ox Truckmakers (LOT). Three-quarters of Ethan's portfolio value consists of CCC's shares, and
the balance consists of LOT's shares. - Correct Answers: Strong: 0.50, 42.5%, 59.5%
Normal: 0.25, 25.5%, 34%
Weak: 0.25, -34%, -42.5%
The expected rate of return on Celestial Crane Cosmetics's stock over the next year is ___. - Correct
Answers: 19.13%
The expected rate of return on Lumbering Ox Truckmakers's stock over the next year is ___. - Correct
Answers: 27.63%
The expected rate of return on Ethan's portfolio over the next year is ___. - Correct Answers: 21.26%
Company A = Orange, tall, thin
Company B = Green, short, wide
Based on the graph's information, which of the following statements is true? - Correct Answers:
Company A has a smaller standard deviation.
Dominic owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep
Broadcasting (BSB). Three-quarters of Dominic's portfolio value consists of HDS's shares, and the balance
consists of BSB's shares. - Correct Answers: Strong: 0.25, 37.5%, 52.5%
Normal: 0.45, 22.5%, 30%
Weak: 0.30, -30%, -37.5%
The expected rate of return on Happy Dog Soap's stock over the next year is ___. - Correct Answers:
10.51%
and Rates of Return) Exam
Questions with Correct
Answers
Based on your understanding of P/E ratios, in which of the following situations would the average
trailing P/E ratio (current price divided by earnings per share over the previous 12 months) of the S&P
500 Index be higher? - Correct Answers: The outlook for the economy and the markets is for an
improvement.
You invest $100,000 in 40 stocks, 20 bonds, and a certificate of deposit (CD). To which kind of risk will
you primarily be exposed? - Correct Answers: Portfolio risk
Generally, investors would prefer to invest in assets that have: - Correct Answers: A higher-than-average
expected rate of return given its perceived risk.
Tyler owns a two-stock portfolio that invests in Falcon Freight Company (FF) and Pheasant
Pharmaceuticals (PP). Three-quarters of Tyler's portfolio value consists of FF's shares, and the balance
consists of PP's shares. - Correct Answers: Strong: 0.20, 27.5%, 38.5%
Normal: 0.35, 16.5%, 22%
Weak: 0.45, -22%, -27.5%
The expected rate of return on Falcon Freight's stock over the next year is ___. - Correct Answers: 1.38%
The expected rate of return on Pheasant Pharmaceuticals's stock over the next year is ___. - Correct
Answers: 3.02%
The expected rate of return on Tyler's portfolio over the next year is ___. - Correct Answers: 1.79%
Company G = Orange, tall, thin
Company H = Green, short, wide
, Based on the graph's information, which statement is false? - Correct Answers: Company H has lower
risk.
Ethan owns a two-stock portfolio that invests in Celestial Crane Cosmetics Company (CCC) and
Lumbering Ox Truckmakers (LOT). Three-quarters of Ethan's portfolio value consists of CCC's shares, and
the balance consists of LOT's shares. - Correct Answers: Strong: 0.50, 42.5%, 59.5%
Normal: 0.25, 25.5%, 34%
Weak: 0.25, -34%, -42.5%
The expected rate of return on Celestial Crane Cosmetics's stock over the next year is ___. - Correct
Answers: 19.13%
The expected rate of return on Lumbering Ox Truckmakers's stock over the next year is ___. - Correct
Answers: 27.63%
The expected rate of return on Ethan's portfolio over the next year is ___. - Correct Answers: 21.26%
Company A = Orange, tall, thin
Company B = Green, short, wide
Based on the graph's information, which of the following statements is true? - Correct Answers:
Company A has a smaller standard deviation.
Dominic owns a two-stock portfolio that invests in Happy Dog Soap Company (HDS) and Black Sheep
Broadcasting (BSB). Three-quarters of Dominic's portfolio value consists of HDS's shares, and the balance
consists of BSB's shares. - Correct Answers: Strong: 0.25, 37.5%, 52.5%
Normal: 0.45, 22.5%, 30%
Weak: 0.30, -30%, -37.5%
The expected rate of return on Happy Dog Soap's stock over the next year is ___. - Correct Answers:
10.51%
