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(TCO 8) Which one of the following is a correct definition of an Ibbotson and Sinquefield investment category as used to report historical returns in your textbook? (Points: 3)U.S. Treasury bills: 1-year debt securities issued by the U.S. Department of the TreasurySmall-company stocks: Stocks of the smallest 20 percent of the firms listed on the NYSELarge-company stocks: Stocks of the largest 10 percent of the firms listed on the NYSELong-term U.S. government bonds: Bonds issued by the U.S. government with a 30-year maturity2. (TCO 8) If the financial markets are efficient, then: (Points: 3)stock prices should never change.stock prices should only respond to unexpected news and events.stock prices should increase or decrease slowly as new events are analyzed and the information is absorbed by the markets.stock prices will only change when an event actually occurs, not at the time the event is anticipated.3. (TCO 8) Which of the following statements is true regarding systematic risk? Select all that apply: (Points: 4)is diversifiableis the total risk associated with surprise eventsit is not project or firm specificis measured by beta4. (TCO 8) Assume a project that has the following returns for years 1 to 5: 15%, 4%, -13%, 34%, and 17%. What is the approximate expected return of this investment? (Points: 3)11%17%16.60%10%5. (TCO 8) Assume you are considering investing in two stocks, A & B. Stock A has an expected return of 16% and Stock B has an expected return of 9.5%. Your goal is to create a two-security portfolio that will have an expected return of 12%. If you have $250,000 to invest today, which of the following statements is true? (Points: 3)You would invest more in Stock A than you would invest in Stock BYou would invest approximately $96,000 in Stock A and $154,000 in Stock BYou would invest the same amount in each stockRegardless of your investment choices, you cannot obtain a return of 12%. 6. (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. What is the beta of Stock I and II respectively? (Points: 3)0.6 and 1.21.2 and 0.61.2 and 0.4Cannot be determined with the information given7. (TCO 8) For this exercise, use the information provided for Problem 30 of Chapter 11 (page 375 of your textbook). Assume that the probability of the state of the economy has changed as follows:The probability of a recession has increased to 30% and the probability for a normal state of economy is now 40%. The market risk premium has increased by 1% as well. Which statement is true? Select all that apply: (Points: 4)Stock I has more overall risk than Stock IIStock II has less systematic risk than Stock IStock I has a higher risk premium than Stock IINone of the above are correct statements8. (TCO 8) Which statements are true regarding risk? Select all that apply: (Points: 4)The expected return is usually not the same as the actual returnA key to assessing risk is determining how much risk an investment adds to a portfolioSome risks cannot be decreased or mitigated by the financial manager.The higher the risk, the higher the return investors require for the investment9. (TCO 8) Which type of risk does beta measure? Look at Table 11.8 in your textbook. Does this table indicate that Citibank has a higher overall risk than Home Depot? Why or why not? (Points: 3)
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