Question

33. Historically, small-firm stocks have earned higher returns than large-firm stocks. When viewed in the context of an efficient market, this suggests that A. Small firms are better run than large firms B. Government subsidies available to small firms produce effects that are discernable in stock market conditions C. Small firms are risker than large firms D. Small firms are not being accurately represented in the data. E. None of the above 34. The holding period return on a stock was 25%. Its period-ending price was $18 per share and its beginning price was $16. Its cash dividend mush have been A. $25 B. $1 C. $2 D. $4 E. None of the above 35. Consider the following investment: A risky portfolio that pays a 20% return with a probability of 60% or a 5% rate of return with a probability of 40%. If you invest $50,000 in the risky portfolio, your expected profit will be A. $3,000 B. $7,000 C. $7,500 D. $10,000 E. None of the above 36. Consider the CAPM. The expected return on the market is 18%. The expected return on a stock with beta of 1.2 is 20%. What is the risk-free rate? A. 2% B. 6% C. 8% D. 12% E. None of the above

Questions 33-36 please

Answer 1

33 Answer in (c) small firms are riskier than large firms. Explanation Small from stocks have earned higher ier returns small fioms have than large firm stocks are riskier than large firms great potential for growth They but limited > riskier. resources so, small firms are 34 ending Price (P,J= $18 Beginning Price (Po) = $16 Holding Period Return (HPR)= 25% of 0.25

Dividend The formula for HPR (Holding Period Return) HPR = D + P,- Po Po 0.25 = D + $18-$16 $16 0,25 x $16 = D + $2 $4 17 Dt $2 $4- $2 =D $2 =D sol the Dividend is $2 2 The right answer is l(e) $2 o 35 Expected Return R, P + R₂ P2 N (2017) (60%) + 5%) (40%)

= (0.2) (0.6) + (0.05) (0.4) 0:12 7 0,02 0,14 expected Return on portfolio a 0.14 x $50,000 $ 7,000 so, the right option is 1(B) $7,000 36 expected Return on Market (Rm) = 180%. expected Return on Stock CE(R)) – 20%. Beta 1.2 As W CAPM per E(R) = R eft ß (Rm - Rf) 20%- RH+ 1.2 (186). - RP)

20% - Rft 21.6./ 102 Rf 20/ -0.2 RE 7 21.6%. 0.2 R+ 21.61. - 20 l 106 1. 0.2 Rf Rf 1.6 ole بلو 0,2 2 8ol. So, Risk face Rate (Re) is 8 % right option is 1(C) 84. is So, the