P04 - Risks

MANAGEMENT ADVISORY SERVICES

RISKS

If Sun State &ant to re*u$e it re;uire* rate of return to 1" er$ent< &'at i t'e 3a@i3u3 (eta $oeffi$ient t'e ne& *iviion $oul* 'ave> /D0 a. ).) *. 1." (. 1.# e. ).# $. 1.2 Bri-'a3 Given t'e Correlation Coeffi$ient (et&een t'e Sto$4 an* Mar4et Portfolio +1. T'e $orrelation $orrelation $oeffi$ient (et&een (et&een to$4 A an* t'e 3ar4et ortfolio i L#.". T'e tan*ar* tan*ar* *eviation of return of t'e to$4 i #6 an* t'at of t'e 3ar4et ortfolio i )#6. )#6. Cal$ulate t'e (eta of t'e to$4. A. #.: C. 1.1 B. 1.# D. #." BM +). T'e $orrelatio $orrelationn $oeffi$ient ent (et&een (et&een to$4 B an* t'e 3ar4et ortfolio ortfolio i #.2. T'e tan*ar* tan*ar* *eviation of t'e to$4 B i =6 an* t'at of t'e 3ar4et i )#6. Cal$ulate t'e (eta of t'e to$4. A. 1.# C. #.2 B. 1.+ D. #.? BM Given t'e itori$al No3inal Return for t'e Sto$4  Mar4et Portfolio +. itori$a itori$all no3inal return return for to$4 A i 26< L1#6 an* L))6. L))6. T'e no3inal nal return return for t'e 3ar4et ortfolio i L"6< L126 an* )+6. )+6. Cal$ulate t'e (eta for to$4 A. A. 1."+ C. 1.# B. #."1 #."1 D. None None of t'e t'e a(ov a(ovee BM ++. T'e t'ree t'ree %ear annual annual return for to$4 to$4 B $o3e out to (e #6< 1#6 an* )"6. T'ree T'ree %ear annual return for t'e 3ar4et ortfolio are L"6< 126< )+6. Cal$ulate t'e (eta for t'e to$4. A. 1." C. # B. #.?+ #.?+ D. None None of t'e t'e a(ov a(ovee BM Required Return 2

.

.G. Penn%a$ Penn%a$4er 4er i interete* interete* in fin*infin*in- t'e aroriate aroriate *i$oun *i$ountt rate for it ne& roe$t for 3a4in- (lue< in4< an* %ello& &i*-et. T'e avera-e (eta of a -rou of $olore* &i*-et 3anufa$turer 3anufa$turer i 1.+ an* t'eir avera-e *e(t,e;uit% ratio i #.#. Penn%a$4er lan to 'ave a *e(t,e;uit% ratio of #.)#. If t'e ri4,free rate i "6 an* t'e e@e$te* ri4 re3iu3 on t'e 3ar4et ortfolio i :6< &'at i t'e re;uire* return for t'e roe$t> /D0 A. :.?)6 C. 1".#26 B. ?.#26 D. 1=.?)6 Glei3

Expected Return

)2. Sto$4 A 'a an e@e$te* e@e$te* return of 1#6 er %ear an* to$4 to$4 B 'a an e@e$te* return of )#6. If ==6 of t'e fun* are invete* in to$4 B< &'at i t'e e@e$te* return on t'e ortfolio of to$4 A an* to$4 B> A. 1#6 C. 1+.=6 B. )#6 )#6 D. None None of t'e t'e a(ov a(ovee BM 12. lori*a lori*a Co3an% Co3an% /C0 an* Minneota Minneota Co3an% Co3an% /MC0 are (ot' ervi$e ervi$e $o3anie $o3anie.. T'eir 'itori$al return for t'e at t'ree %ear %ear are5 C5 ,1#6 A. C5 C5 =#6 =#6 MC5 MC5 =#6 =#6 C. C5 C5 )#6 )#6 MC5 MC5 2#6 2#6 Pa-e  of ":

RISKS

MANAGEMENT ADVISORY SERVICES

RISKS

If Sun State &ant to re*u$e it re;uire* rate of return to 1" er$ent< &'at i t'e 3a@i3u3 (eta $oeffi$ient t'e ne& *iviion $oul* 'ave> /D0 a. ).) *. 1." (. 1.# e. ).# $. 1.2 Bri-'a3 Given t'e Correlation Coeffi$ient (et&een t'e Sto$4 an* Mar4et Portfolio +1. T'e $orrelation $orrelation $oeffi$ient (et&een (et&een to$4 A an* t'e 3ar4et ortfolio i L#.". T'e tan*ar* tan*ar* *eviation of return of t'e to$4 i #6 an* t'at of t'e 3ar4et ortfolio i )#6. )#6. Cal$ulate t'e (eta of t'e to$4. A. #.: C. 1.1 B. 1.# D. #." BM +). T'e $orrelatio $orrelationn $oeffi$ient ent (et&een (et&een to$4 B an* t'e 3ar4et ortfolio ortfolio i #.2. T'e tan*ar* tan*ar* *eviation of t'e to$4 B i =6 an* t'at of t'e 3ar4et i )#6. Cal$ulate t'e (eta of t'e to$4. A. 1.# C. #.2 B. 1.+ D. #.? BM Given t'e itori$al No3inal Return for t'e Sto$4  Mar4et Portfolio +. itori$a itori$all no3inal return return for to$4 A i 26< L1#6 an* L))6. L))6. T'e no3inal nal return return for t'e 3ar4et ortfolio i L"6< L126 an* )+6. )+6. Cal$ulate t'e (eta for to$4 A. A. 1."+ C. 1.# B. #."1 #."1 D. None None of t'e t'e a(ov a(ovee BM ++. T'e t'ree t'ree %ear annual annual return for to$4 to$4 B $o3e out to (e #6< 1#6 an* )"6. T'ree T'ree %ear annual return for t'e 3ar4et ortfolio are L"6< 126< )+6. Cal$ulate t'e (eta for t'e to$4. A. 1." C. # B. #.?+ #.?+ D. None None of t'e t'e a(ov a(ovee BM Required Return 2

.

.G. Penn%a$ Penn%a$4er 4er i interete* interete* in fin*infin*in- t'e aroriate aroriate *i$oun *i$ountt rate for it ne& roe$t for 3a4in- (lue< in4< an* %ello& &i*-et. T'e avera-e (eta of a -rou of $olore* &i*-et 3anufa$turer 3anufa$turer i 1.+ an* t'eir avera-e *e(t,e;uit% ratio i #.#. Penn%a$4er lan to 'ave a *e(t,e;uit% ratio of #.)#. If t'e ri4,free rate i "6 an* t'e e@e$te* ri4 re3iu3 on t'e 3ar4et ortfolio i :6< &'at i t'e re;uire* return for t'e roe$t> /D0 A. :.?)6 C. 1".#26 B. ?.#26 D. 1=.?)6 Glei3

Expected Return

)2. Sto$4 A 'a an e@e$te* e@e$te* return of 1#6 er %ear an* to$4 to$4 B 'a an e@e$te* return of )#6. If ==6 of t'e fun* are invete* in to$4 B< &'at i t'e e@e$te* return on t'e ortfolio of to$4 A an* to$4 B> A. 1#6 C. 1+.=6 B. )#6 )#6 D. None None of t'e t'e a(ov a(ovee BM 12. lori*a lori*a Co3an% Co3an% /C0 an* Minneota Minneota Co3an% Co3an% /MC0 are (ot' ervi$e ervi$e $o3anie $o3anie.. T'eir 'itori$al return for t'e at t'ree %ear %ear are5 C5 ,1#6 A. C5 C5 =#6 =#6 MC5 MC5 =#6 =#6 C. C5 C5 )#6 )#6 MC5 MC5 2#6 2#6 Pa-e  of ":

RISKS

MANAGEMENT ADVISORY SERVICES A. 2.?6 B. 1.==6

RISKS C. 1+.2#6 D. 1=."#6

Glei3

Risk-Adjusted Rate ! Return 1#

. Dan*% Dan*% Pro*u$t Pro*u$t overall overall &ei-'te* avera-e avera-e re;uire* re* rate of return return i 1# er$ent. er$ent. It %o-urt %o-urt *iviion i ri4ier t'an avera-e< it fre' ro*u$e *iviion 'a avera-e ri4< an* it intitutional foo* *iviion 'a (elo&,avera-e ri4. Dan*% a*ut for (ot' *iviional an* roe$t ri4 (% a**in- or u(tra$tin- ) er$enta-e oint. T'u< t'e 3a@i3u3 a*ut3ent i + er$enta-e oint. 7'at i t'e ri4,a*ute* re;uire* rate of return for a lo&,ri4 roe$t in t'e %o-urt *iviion> /E0 a. "6 *. 1)6 (. 26 e. 1+6 $. 1#6 Bri-'a3

#. Sto$4 8 'a a tan*ar* tan*ar* *eviation of return return of 1#6. Sto$4 Y 'a a tan*ar* tan*ar* *eviation *eviation of return of )#6. T'e $orrelation $oeffi$ient ent (et&een to$4 i #.=. If %ou invet "#6 of t'e fun* in to$4 8 an* +#6 in to$4 Y< &'at i t'e tan*ar* *eviation of a ortfolio> A. 1#6 C. 1).)6 B. )#6 )#6 D. None None of t'e t'e a(ov a(ovee BM )#. lori*a lori*a Co3an% Co3an% /C0 an* Minneota Minneota Co3an% Co3an% /MC0 are (ot' ervi$e ervi$e $o3anie $o3anie.. T'eir 'itori$al return for t'e at t'ree %ear %ear are5 C5 ,1#6 A. 1+.+6 C. 16 B. 126 126 D. None None of t'e t'e a(ov a(ovee BM Mini'u' Prt!"i Risk

Prt!"i #ariance

1?. T'e 'itori$al return *ata *ata for t'e at t'ree %ear for Sto$4 B an* t'e to$4 3ar4et ortfolio are5 Sto$4 B5, )+6< #6< )+6< Mar4et Portfolio5, Portfolio5, 1#6< 1)6< )#6. Cal$ulate t'e varian$e varian$e in t'e 3ar4et. A. 1:) C. 1)2 B. )2 D. None None of t'e t'e a(ov a(ovee BM 1:. lori*a Co3an% Co3an% /C0 an* Minneota Co3an% Co3an% /MC0 are are (ot' ervi$e ervi$e $o3anie. $o3anie. T'eir 'itori$al return for t'e at t'ree %ear %ear are5 C5 ,1#6 A. C5 C5 =#6 =#6 MC5 MC5 =#6 =#6 C. C5 C5 )#6 )#6 MC5 MC5 2#6 2#6

RPCPA< AICPA< CMA  CIA E8AMINATION JESTIONS

Pa-e  of ":

MANAGEMENT ADVISORY SERVICES B. C5 )=6 MC5 ?=6

RISKS D. None of t'e a(ove

BM

Varian$e ). lori*a Co3an% /C0 an* Minneota Co3an% /MC0 are (ot' ervi$e $o3anie. T'eir 'itori$al return for t'e at t'ree %ear are5 C5 ,1#6 A. 1"6 C. 1)6 B. 1+6 D. )#6 BM 2. Sto$4 8 'a an e@e$te* return of )#6 an* to$4 Y 'a 1#6. T'e ri4ine of Sto$4 8 a 3eaure* (% t'e tan*ar* *eviation of t'e return i t&i$e t'at of Sto$4 Y. If t'e $orrelation $oeffi$ient (et&een t'e t&o to$4 i ero< &'at i t'e e@e$te* return on t'e ortfolio &it' 3ini3u3 ri4 /3ini3u3 varian$e ortfolio0> A. )#6 C. 1)6 B. 1=6 D. 1#6 BM )). lori*a Co3an% /C0 an* Minneota Co3an% /MC0 are (ot' ervi$e $o3anie. T'eir 'itori$al return for t'e at t'ree %ear are5 C5 ,1#6 A. 122 C. )#2 B. 1:" D. None of t'e a(ove BM E@e$te* Return ". Sto$4 A 'a an e@e$te* return of )#6 an* Sto$4 B 'a an e@e$te* return of 1)6. T'e ri4ine of Sto$4 A a 3eaure* (% t'e varian$e i t'ree ti3e t'at of Sto$4 B. If t'e $orrelation $oeffi$ient (et&een t'e t&o to$4 i ero< &'at i t'e e@e$te* return on t'e 3ini3u3 varian$e ortfolio> A. 1"6 C. 1)6 B. 1+6 D. )#6 BM 2. Sto$4 8 'a an e@e$te* return of )#6 an* to$4 Y 'a 1#6. T'e ri4ine of Sto$4 8 a 3eaure* (% t'e tan*ar* *eviation of t'e return i t&i$e t'at of Sto$4 Y. If t'e $orrelation $oeffi$ient (et&een t'e t&o to$4 i ero< &'at i t'e e@e$te* return on t'e ortfolio &it' 3ini3u3 ri4 /3ini3u3 varian$e ortfolio0> A. )#6 C. 1)6 B. 1=6 D. 1#6 BM )). lori*a Co3an% /C0 an* Minneota Co3an% /MC0 are (ot' ervi$e $o3anie. T'eir 'itori$al return for t'e at t'ree %ear are5 C5 ,1#6 A. L1## C. 11## B. 1## D. Nee* a**itional infor3ation BM

RPCPA< AICPA< CMA  CIA E8AMINATION JESTIONS

MANAGEMENT ADVISORY SERVICES

1". lori*a Co3an% /C0 an* Minneota Co3an% /MC0 are (ot' ervi$e $o3anie. T'eir 'itori$al return for t'e at t'ree %ear are5 C5 ,1#6