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# 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.