jawz

An investor has a $12,000 portfolio consisting of $7,000 in stock A with an expected return of 20% and $5,000 in stock B with an expected return of 10%. What is the investor’s expected return on the portfolio?

A) 12.2%.

B) 15.0%.

C) 15.8%.

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Find the weighted mean where the weights equal the proportion of $12,000. (7,000 / 12,000)(0.20) + (5,000 / 12,000)(0.10) = 15.8%.

jawz

Michael Philizaire is studying for the Level I CFA examination. During his review of measures of central tendency, he decides to calculate the geometric average of the appreciation/deprecation of his home over the last five years. Using comparable sales and market data he obtains from a local real estate appraiser, Philizaire calculates the year-to-year percentage change in the value of his home as follows: 20, 15, 0, -5, -5. The geometric return is closest to:

A) 11.60%.

B) 4.49%.

C) 0.00%.

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The geometric return is calculated as follows:

[(1 + 0.20) × (1 + 0.15) × (1 + 0.0) (1 − 0.05) (1 − 0.05)]1/5 – 1,
or [1.20 × 1.15 × 1.0 × 0.95 × 0.95]0.2 – 1 = 0.449, or 4.49%.

jawz

The owner of a company has recently decided to raise the salary of one employee, who was already making the highest salary in the company, by 40%. Which of the following value(s) is (are) expected to be affected by this raise?

A) mean and median only.

B) median only.

C) mean only.

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Mean is affected because it is the sum of all values / number of observations.  Median is not affected as it the midpoint between the top half of values and the bottom half of values.

jawz

An investor has a portfolio with 10% cash, 30% bonds, and 60% stock. Last year, the cash returns was 2.0%, the bonds’ return was 9.5%, and the stocks’ return was –32.5%. What was the return on the investor’s portfolio?

A) –16.45%.

B) –33.33%.

C) –7.00%.

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Find the weighted mean. (0.10)(0.02) + (0.30)(0.095) + (0.60)(–0.325) = –16.45%.

burning0spear

Which measure of central tendency can be used for both numerical and categorical variables?

A) Mean.

B) Median.

C) Mode.

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The mode is the only choice that makes sense since you cannot take an average or median of categorical data such as bond ratings (AAA, AA, A, etc.) but the mode is simply the most frequently occurring number or category.

burning0spear

For the last four years, the returns for XYZ Corporation’s stock have been 10.4%, 8.1%, 3.2%, and 15.0%. The equivalent compound annual rate is:

A) 9.2%.

B) 9.1%.

C) 8.9%.

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(1.104 × 1.081 × 1.032 × 1.15)0.25 − 1 = 9.1%

burning0spear

What is the compound annual growth rate for stock A which has annual returns of 5.60%, 22.67%, and -5.23%?

A) 7.08%.

B) 6.00%.

C) 8.72%.

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Compound annual growth rate is the geometric mean. (1.056 × 1.2267 × 0.9477)1/3 – 1 = 7.08%

burning0spear

Find the mean, median, and mode, respectively, of the following data:

3, 3, 5, 8, 9, 13, 17

A) 8; 8.28; 3.

B) 8.28; 8; 3.

C) 3; 8.28; 8.

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Mean = (3 + 3 + 5 + 8 + 9 + 13 + 17) / 7 = 8.28; Median = middle of distribution = 8 (middle number); Mode = most frequent = 3.

burning0spear

An investor has a $15,000 portfolio consisting of $10,000 in stock A with an expected return of 20% and $5,000 in stock B with an expected return of 10%. What is the investor’s expected return on the portfolio?

A) 12.2%.

B) 7.9%.

C) 16.7%.

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Find the weighted mean where the weights equal the proportion of $15,000. [(10,000 / 15,000) × 0.20] + [(5,000 / 15,000 × 0.10] = 16.7%.

burning0spear

An investor has a portfolio with 10% cash, 30% bonds, and 60% stock. If last year’s return on cash was 2.0%, the return on bonds was 9.5%, and the return on stock was 25%, what was the return on the investor’s portfolio?

A) 36.50%.

B) 18.05%.

C) 22.30%.

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Find the weighted mean of the returns. (0.10 × 0.02) + (0.30 × 0.095) + (0.60 × 0.25) = 18.05%