【正文】 has a $15,000 portfolio consisting of $10,000 in stock A with an expected return of 20 percent and $5,000 in stock B with an expected return of 10 percent. What is the investor’s expected return on the portfolio? A. %. B. %. C. %. D. %. D Find the weighted mean where the weights equal the proportion of $15,000. [(10,000/15,000) *] + [(5,000/15,000 * ) = %. 29 Question ID: 19701 In a skewed distribution, approximately how many observations will fall between two standard deviations from the mean? A. 75%. B. 95%. C. 25%. D. 84%. A Because the distribution is skewed, we must use Chebyshev’s Inequality, which states that the proportion of observations within k standard deviations of the mean is at least 1 – (1/k2). 1 – (1/22) = , or 75%. Note that for a normal distribution, 95% of observations will fall between +/ 2 standard deviations of the mean. Question ID: 19892 The mean monthly return on a sample of small stocks is percent with a standard deviation of percent. What is the coefficient of variation? A. 128%. B. 78%. C. 64%. D. 84%. B The coefficient of variation expresses how much dispersion exists relative to the mean of a distribution and is found by CV = s/mean. , or 78%. 30 Question ID: 19384 The mean monthly return on (. Treasury bills) Tbills is percent with a standard deviation of percent. What is the coefficient of variation? A. 840%. B. 84%. C. 168%. D. 60%. D The coefficient of variation expresses how much dispersion exists relative to the mean of a distribution and is found by CV = s/mean, or , or 60%. Question ID: 18544 The mean and standard deviation of returns from Stock A and B are represented below. Arithmetic Mean Standard Deviation Stock A 20% 8% Stock B 15% 5% The coefficient of variation of the two stocks is given by: A. and B. and C. and D. and C CV = Standard Deviation / Mean =(8/20)= and (5/15)= 31 Question ID: 19893 Which of the following statements regarding the Sharpe ratio is TRUE? The Sharpe ratio measures: A. dispersion relative to the mean. B. peakedness of a return distrubtion. C. excess return per unit of risk. D. total return per unit of risk. C The Sharpe ratio measures excess return per unit of risk. Remember that the numerator of the Sharpe ratio is (portfolio return – risk free rate), hence the importance of excess return. Note that dispersion relative to the mean is the definition of the coefficient of variation, and the peakedness of a return distribution is measured by kurtosis. Question ID: 19896 A distribution with a mean that is less than its median: A. is positively skewed. B. is negatively skewed. C. has positive excess kurtosis. D. has negative excess kurtosis. D A distribution with a mean that is less than its median is a negatively skewed distribution. A negatively skewed distribution is characterized by many small gains and a few extreme losses. Note that kurtosis is a measure of the peakedness of a return distribution. 32 Question ID: 19895 If a distribution is positively skewed: A. the mode is greater than the median. B. the mean is greater than the median. C. the median, mean, and mode are equal. D. the mode is greater than the mean. B For a positively skewed distribution, the mode is less than the median, which is less than the mean (the mean is greatest). Remember that investors are attracted to positive skewness because the mean return is greater than the median return. Question ID: 19897 Which of the following statements regarding skewness is FALSE? A. In a skewed distribution, 95% of all values will lie within plus or minus two standard deviations of the mean. B. A positively skewed distribution is characterized by many small losses and a few extreme gains. C. Skewness refers to a distribution that is not symmetrical. D. A normal distribution will have a mean that is equal to its median. A For a normal distribution, the mean will be equal to its median and 95% of all observations will fall within plus or minus two standard deviations of the mean. For a skewed distribution, because it is not symmetrical, this may not be the case. Chebyshev’s inequality tells us that at least 75% of observations will lie within plus or minus two standard deviations from the mean. 33 Question ID: 19386 Which of the following statements about kurtosis is FALSE? Kurtosis: A. measures the peakedness of a distribution reflecting a greater or lesser concentration of returns around the mean. B. describes the degree to which a distribution is not symmetric about its mean. C. is used to reflect a departure from the normal distribution. D. is used to reflect the probability of extreme outes for a return distribution. B The degree to which a distribution is not symmetric about its mean is measured by skewness. Kurtosis is used to reflect a departure from the normal distribution, measures the peakedness of a distribution, and is used to reflect the probability of extreme outes. Question ID: 19899 A distribution of returns that has a greater percentage of small deviations from the mean and a greater percentage of extremely large deviations from the mean: A. has negative excess kurtosis. B. is a normal distribution. C. is positively skewed. D. has positive excess kurtosis. D A distribution that has a greater percentage of small deviations from the mean and a greater percentage of extremely large deviations from the mean will be leptokurtic and will exhibit positive excess kurtosis. The distribution will be taller with fatter tails than a normal distribution. 34 Question ID: 19900 Which of the following statements about semilogarithmic scales is FALSE? A. Semilogari