• Case Western Reserve University

• BAFI 356

Individual Assignment 2

(Due on 2/24 at the beginning of class)

Please write your answers on the answer sheet at the end! The total is 120 points.

1. Total risk is

A. the sum of systematic risk and idiosyncratic risk

B. measured by the variance of stock returns

C. Both A and B

D. None of the above

2. _________ can be diversified away if one holds a large number of stocks in his/her portfolio

A. Firm-specific risk

B. Market risk

C. Total risk

D. None of the above

3. Which of the following represents firm-specific risk?

A. industrial production falls

B. interest rates change

C. unemployment rate rises

D. None of the above

4. Which of the following can be viewed as a proxy for the aggregate stock market portfolio?

A. Value-weighted average returns of all stocks traded on the NYSE, AMEX, and NASDAQ

B. S&P 500 index

C. NYSE index

D. All of the above

5. Which of the following represents systematic risk?

A. Stock market crash

B. CEO’s unexpected resignation

C. Labor strike

D. None of the above

6. What is the implication of having a stock with beta = 1.2?

A. If the market goes down by 10%, the stock return goes up by 12%

B. If the market goes up by 10%, the stock return goes up by 12%

C. If the market goes down by 10%, the stock return goes down by 10%

D. If the market goes up by 12%, the stock return goes up by 12%

Use the following information for Questions 7-18

date Stock X Stock Y Stock Z Market Risk-Free

2001 0.10 -0.25 0.35 0.07 0.05

2002 0.15 0.15 -0.25 0.05 0.05

2003 0.35 0.10 0.20 0.20 0.05

2004 -0.15 -0.40 0.10 0.10 0.05

7. Given the returns of stock X, Y, and Z and the return on the market portfolio, find the beta of Stock X for the period

2001-2004?

A. 1.5032

B. 1.6729

C. 1.9078

D. 1.6328