The Problem Set is provided to you to enable you to practice the concepts outlined in the textbook. Select THREE completed problems from the assignment and post your solutions to those problems. In your solutions, provide an explanation as to why you choose the answer. 1. Which of the following are assumptions of the simple CAPM model? 2. Consider the CAPM. The risk-free rate is 6% and the expected return on the market is 18%. What is the expected return on a stock with a beta of 1.3? 3. The market portfolio has a beta of __________. 4. You have a $50,000 portfolio consisting of Intel, GE and Con Edison. You put $20,000 in Intel, $12,000 in GE and the rest in Con Edison. Intel, GE and Con Edison have betas of 1.3, 1.0 and 0.8 respectively. What is your portfolio beta? 5. You put up $50 at the beginning of the year for an investment. The value of the investment grows 4% and you earn a dividend of $3.50. Your HPR was 6. Rank the following from highest average historical return to lowest average historical return from 1926-2006. 7. Rank the following from highest average historical standard deviation to lowest average historical standard deviation from 1926-2006. 8. The geometric average of -12%, 20% and 25% is __________. 9. Suppose you pay $9,700 for a $10,000 par Treasury bill maturing in three months. What is the holding period return for this investment? 10. Your investment has a 20% chance of earning a 30% rate of return, a 50% chance of earning a 10% rate of return and a 30% chance of losing 6%. What is your expected return on this investment? 11. A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.5%. This portfolio had a Sharpe measure of _____. 12. The term excess-return refers to _______________. 13. The probability of an adverse outcome is a definition of 14. A portfolio is considered to be efficient if: 15. A positive relationship between expected return and expected risk is consistent with 16. What was BMC’S return on equity in 2004? 17. What was BMC’S quick ratio for 2004? 18. What was BMC’S interest coverage for 2004? 19. What was BMC’S total asset turnover for 2004? 20. What was BMC’S current ratio at year-end 2004? 21. What was BMC’S net profit margin? 22. What was BMC’S fixed asset turnover ratio? 23. What was the financial leverage multiplier used in the BMC system? 24. What is BMC’S traditional cash flow? 25. What is BMC’S operating profit margin?
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