You are examining a portfolio composed of 33% money-market investments, 9.5% bonds, and 57.5% stocks. Last year, the return on the money-market investments was 4%; the return on bonds was 9%, and the return on stocks was -11%. What is the portfolio weighted average return?
Answer(s): B
The portfolio weighted-average mean return is equal to the sum (as i goes from 1 to n) of w_i * X_i, where w_i is the percentage weight in the portfolio of the ith asset, and X_i is the investment return of the ith asset. Here, we get a weighted mean of 0.33 * 0.04 + 0.095 * 0.09 + 0.575 * -0.11 = -4.15%.
You are examining the return on equity ratios of the nation's publicly owned companies. You wish to calculate a typical deviation from the average ROE, but you do not have time to gather data on all the firms. What measure should you use?
Answer(s): D
A typical deviation is going to be a standard deviation, not a variance. When using a sample, instead of the entire population, you have sample standard deviation, not population standard deviation.
Three banks have quoted interest rates as follows:Bank A: 10% per year, compounded quarterly.Bank B: 11% per year, compounded annually.Bank C: 10.5% per year, compounded semi-annually.Which bank should you choose to invest with for a period of one year and what's the effective annual rate?
Answer(s): A
The annual yield for Bank A is (1+10%/4)^4 - 1 = 10.38%, that for Bank B is 11% and that for Bank C is (1 +10.5%/2)^2 - 1 = 10.78%. Therefore, you should invest with Bank B.
Which is true for a binomial distribution?
Answer(s): C
The probability of success is a constant in a binomial distribution.
What annual interest rate, compounded annually, will cause an original deposit of $400 to grow to $625, after 7 years?
On the BAII Plus, press 7 N, 400 PV, 0 PMT, 625 +/- FV, then CPT I/Y. On the HP12C, press 7 n, 400 PV, 0 PMT, 625 CHS FV, then press i. Make sure the BAII Plus has the P/Y value set to 1.
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