Instructions: Answer all questions

Please note that there can only be one correct answer.

TASK: EC3013 Financial Economics Assignment

Questions 1, 2, 3, 4, are based on the following data.

 

 

 

 

1.The respective weights of the three stocks in the portfolio are:

A) 0.8, -0.4, -0.3

B) 8, -4, -3

C) 0.8, 0.4, -0.2

D) None of the above

2.If the good economy is 4 times as likely as the bad economy, the expected return on the portfolio is:

A) -6%

B) -0.006

C) 6%

D) None of the above

3.If the good economy is 4 times as likely as the bad economy, the risk associated to the portfolio is measured by:

A) variance = 4%

B) standard deviation = 2%

C) variance = 0.016

D) None of the above

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4.If the good economy is 4 times as likely as the bad economy and the portfolio is made of only BP and Agip the variance-covariance matrix is given by the following values:

A) variance(BP) = 0.04, covariance(BP,Agip) = 0.0013, variance(Agip) = 0.0064

B) variance(BP) = 0.0144, covariance(BP,Agip) = 0.0048, variance(Agip) = 0.0016

C) variance(BP) = 0.04, covariance(BP,Agip) = -0.0013, variance(Agip) = 0.0064

D) None of the above

Question 5 and 6 : EC3013 Financial Economics Assignment-City, University of London

5.Nike has an expected return of 11% and a beta equal to 8. The risk-free rate on the market is 3%. If the CAPM holds the mean return of the market portfolio is:

A) 7%

B) 4%

C) 8%

D) Need more information to answer

6.A necessary condition for the CAPM to hold is that:

A)Investors have the same preferences for risk and returns

B)Investors have the same beliefs

C)Short sales are allowed

D)Markets are strongly informationally efficient

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