Liberty BUSI 352 Quiz 5 Answers Complete Solutions

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Question 1

An investor purchased a bond for $980, received $75 in interest, and then sold the bond for $950 after holding it for seven months. What is the holding period return?

Question 2

The risk which a firm may not be able to meets its debt obligations is known as:

Question 3

Cathy and her twin sister Carley, both age 25, each believe they have the superior savings plan. Cathy saved $5,000 at the end of each year for ten years then let her money grow for 30 years. Carley on the other hand waited 10 years then began saving $5,000 at the end of each year for 30 years. They both earned 9% on their investment and are 65 years old today and ready to retire. Which of the following statements is correct?

Question 4

The type of risk which measures the extent to which a firm uses debt securities and other forms of debt in its capital structure to finance is known as:

Question 5

The type of risk which cannot be eliminated through diversification is:

Question 6

Michael has an investment with the following annual returns for four years. Year 1: 12% Year 2: ­5% Year 3: 8% Year 4: 18% What is the arithmetic mean (AM) and what is the geometric mean (GM)?

Question 7

Which of the following statements regarding investment risk is correct? 1: Beta is a measure of systematic, non­diversifiable risk. 2: Rational investors will form portfolios and eliminate systematic risk. 3: Rational investors will form portfolios and eliminate unsystematic risk. 4: Systematic risk is the relevant risk for a well­diversified portfolio. 5: Beta captures all the risk inherent in an individual security.

Question 8

Sylvia has two assets in her portfolio, asset A and asset B. Asset A has a standard deviation of 40% and asset B has a standard deviation of 20%. 50% of her portfolio is invested in asset A and 50% is invested in asset B. The correlation for asset A and asset B is 0.90. What is the standard deviation of her portfolio?

Question 10

Mutual fund XYZ has a beta of 1.5, a standard deviation of 12%, and a correlation to the S&P 500 of 0.80. How much return of fund XYZ is due to the S&P 500?

Question 11

Which factors may affect an individual’s retirement plan? 1: Work life expectancy 2: Retirement life expectancy 3: Savings rate 4: Investment returns 5: Inflation

Question 12

Tyrone, age 25, expects to retire at age 60. He expects to live until age 90. He anticipates needing $45,000 per year in today’s dollars during retirement. Tyrone can earn a 12% rate of return and he expects inflation to be 4%. How much must Tyrone save, at the beginning of each year, to meet his retirement goal?

Question 14

The following investment return will result in what dollar weighted return? An initial outlay of $50,000, with three years of additional outflows of $10,000 each, and inflows as follows: $0 the first year, $20,000 in years 2 and 3, and sale of the property at the end of year 3 for $75,000.

Question 15

What is the weighted average beta of the following portfolio? Stock L has a beta of 1.45 and constitutes 10% of the portfolio; Stock M has a value of $125,000, with a beta of 0.93; While Stock N makes up 40% of the portfolio with a beta of 0.65, and Stock O, with a 2.2 beta has a dollar value of $175,000.