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# Corporate Finance Online

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## Quiz 5 : Risk and Return - Introduction

If the probability of a 20% return is 70% and the probability of a 3% loss is 30%, what is the expected return?
Free
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A

A year ago, you purchased IBM stock for $94 a share. Today, IBM stock is selling for$93 a share. Additionally, you just received a check for $1.20 per share. Your holding period return is Free Multiple Choice Answer: Answer: A Suppose you paid$18.50 per share for Commerce Group Inc. common stock and sold it one year later for $24 per share. What was your holding period return if the stock paid no dividends during the year? Free Multiple Choice Answer: Answer: E If General Motors expects profits of$50 million in a booming economy, what is the expected profit during a recession if this is the only other possibility and the overall expected profit is $35 million? The probability of a recession is 70%. Multiple Choice Answer: Which of the following would be the most useful to an investor who is evaluating securities to add to her portfolio? Multiple Choice Answer: Consider the following bet: heads I pay you a dollar, tails you pay me a dollar. What is the expected payoff (return)of this bet? (Assume a fair coin.) Multiple Choice Answer: A home insurance company anticipates the following pattern of claims, based on historical data. What is the expected claim on the next policy sold by the company? Multiple Choice Answer: If the required return from an asset is 10%, and the asset has a 60% probability of yielding a 20% return and a 40% probability of earning a 5% return, you should: Multiple Choice Answer: The stock for L-Corp expects a 12% return in a down economy, 15% in a normal economy, and 20% in a booming economy. What is the expected return if there is a 20% chance for a down economy and a 65% chance for a normal economy? Multiple Choice Answer: Which of the following is a false statement? Multiple Choice Answer: Compaq recently adjusted the probabilities for its expected cash flows in light of the Asian currency crisis. It revised the probability of favorable conditions from 32% to 18% and the probability of poor earnings from 7% to 17%. Which of the following is the most likely result from this revision? Multiple Choice Answer: Which of the following is a true statement? Multiple Choice Answer: Which of the following most closely defines the term risk in finance? Multiple Choice Answer: You bought a stock for$80.00 and sold it after three years for $95.00. While you held the stock it paid$3.00 in dividends. What is the annualized return?
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To earn a ________ return, you must incur ________ risk.
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XYZ Corp expects to have $350,000 in sales in a poor economy,$500,000 in a moderate economy, and $900,000 in a booming economy. If the chances of a booming economy and poor economy are 10% each, what is the expected return? Multiple Choice Answer: Frank's Franks went public and opened at$15.00 per share. One year later the stock was selling for $17.50 per share. What was the holding period return if during the year Frank sent out$1.25 per share in dividends?
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If the probability of a 20% return is 70% and the probability of a 4% loss is 30%, what is the expected return to the nearest whole percentage?
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The expected return on an asset is 13% and the required return is 12%. You should probably
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Given the following probability distributions, what are the expected returns for the Market and for Security J? State 1 P1 = 0.2 Km = -10% Kj = 40% : State 2 P1 = 0.5 Km = 10% Kj = -20% : State 3 P1 = 0.3 Km = 30% Kj = 30%
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