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%.