Assign7
Question 1
(5 points) Shareholders of Exxon Oil Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is
Your Answer
Score
Explanation
specific/idiosyncratic risk.
systematic/market risk.
Correct
5.00
Correct.
Total
5.00 / 5.00
Question Explanation
A fundamental question about different types of risks.
Question 2
(5 points) Suppose there are three securities (A, B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.29, 0.34, and 0.37, respectively. The returns (%) on the securities in these states are as follows: Security A {expansion = +27.55, normal = +8.00, recession = +6.00}; Security B {+40.59, +14.00, -19.00}; Security C {+9.50, +9.50, +9.50}. If the investor is risk neutral (means that she does not care/worry about risk), which of these three securities would she buy?
Your Answer
Score
Explanation
None of them.
Security A.
Security C.
Security B.
Inorrect
0.00
Think again; what single aspect of returns will she value.
Total
0.00 / 5.00
Question Explanation
This is a question that makes you calculate expected returns and, given the investor's attitude toward risk, also asks you to make a choice on her behalf.
Question 3
(5 points) Suppose your dear old Grandfather approaches you for investment advice. He knows of your great training in finance and statistics and gives the following instructions: "I have lived a long time and through many challenges. But the recent financial upheaval, with its ups and downs, is too much for me to bear. Just pick for me a portfolio with the least risk." Suppose there are portfolios (A, B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.43, 0.37, and 0.20, respectively. The returns (%) on the
(5 points) Shareholders of Exxon Oil Company face a variety of risks in holding its shares. If the economy falters, people tend to travel less and so there is less demand from the airlines industry for Exxon's fuels. This type of risk that Exxon's shareholders bear is
Your Answer
Score
Explanation
specific/idiosyncratic risk.
systematic/market risk.
Correct
5.00
Correct.
Total
5.00 / 5.00
Question Explanation
A fundamental question about different types of risks.
Question 2
(5 points) Suppose there are three securities (A, B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.29, 0.34, and 0.37, respectively. The returns (%) on the securities in these states are as follows: Security A {expansion = +27.55, normal = +8.00, recession = +6.00}; Security B {+40.59, +14.00, -19.00}; Security C {+9.50, +9.50, +9.50}. If the investor is risk neutral (means that she does not care/worry about risk), which of these three securities would she buy?
Your Answer
Score
Explanation
None of them.
Security A.
Security C.
Security B.
Inorrect
0.00
Think again; what single aspect of returns will she value.
Total
0.00 / 5.00
Question Explanation
This is a question that makes you calculate expected returns and, given the investor's attitude toward risk, also asks you to make a choice on her behalf.
Question 3
(5 points) Suppose your dear old Grandfather approaches you for investment advice. He knows of your great training in finance and statistics and gives the following instructions: "I have lived a long time and through many challenges. But the recent financial upheaval, with its ups and downs, is too much for me to bear. Just pick for me a portfolio with the least risk." Suppose there are portfolios (A, B, and C) to choose from, and next year the economy will be in an expansion, normal, or recession state with probabilities 0.43, 0.37, and 0.20, respectively. The returns (%) on the