Suppose you visit with a financial adviser, and you are considering investing some of your wealth in one of three investment portfolios stocks, bonds, or commodities Your financial advisen you with the following table, which gives the probabilites of possible returns from each investment Stocks Bonds Commodities Probability Return Probability Return Probability Return 0.15 02 20% 06 20% 0.15 16.7% 04 02 15% 0.25 02 8% 0.45 5% 0% To maximize your expected return, you should choose: OA bonds OB stocks 8% 3.3% OA the stock portfolio because there is less uncertainty over the outcome OB. the bond portfolio because there is less uncertainty over the outcome OC. the stock portfolio because of greater expected return 10% 7.5% OC. commodites OD. All of the portfolios have the same expected retum If you are risk-averse and had to choose between the stock or the bond investments, you would choose 02 02

10. Which one of the following measures may be used to measure the risk of an investment on its own? a) Expected return of the investment. b) Expected utility of the investment for an investor. c) Standard deviation of the possible outcomes of the investment. d) The Bernoullian utility function's value of a good investment outcome.

If the risk-free rate is 3 percent and the risk premium is 5 percent, what is the required return?

1. Which of the following is INCORRECT? a All of a stock's risk could be unsystematic. b. A negative beta stock has an expected return less than the risk-free rate. c. Anticipated returns on any given stock are always greater than 0. d. Two assets with a correlation of -1 could be combined to create a portfolio with a standard deviation of zero (no risk). 2. Which of the following measures the total risk of a portfolio? a. Beta b. Standard Deviation c. Correlation Coefficient d. Alpha 3. Which of the following stocks have the highest systematic risk? a A stock with high correlation to the market and high returm volatility. b. A stock with low correlation to the market and a high return volatility. c A stock with high correlation to the market and a low return volatility. d. A stock with low correlation to the market and a low return volatility. 4. Which of the following companics have the lowest systematic risk? a A company that sells soups (Campbells), beta=0.60 b. A coffee company…