Question

7.You have $20,000 to invest. You want to purchase shares of American Airlines (AAL)at $28.75, Target (TGT)at $76.85, Toyota Motor at $112.60and Wells Fargo (WFC) at $48.35. Suppose you want your portfolio to consist of 20 percent American Airlines, 25 percent Target, 40 percent Toyota Motor and 15 percent Wells Fargo. If you purchase only whole stocks, which of the following statements is (are) correct

?(x)Youshould purchase more than 138 shares but less than 140shares of American.

(x)You should purchase 62shares of Target and 65 shares of Wells Fargo.

(x)You should purchase 71shares of Toyota Motor.

A.(x), (y) and (z)B.(x) and (y) onlyC.(x) and (z) onlyD.(y) and (z) onlyE.(x) only

8.Rank the following three stocks by their risk-return relationship, best to worst. New Techhas an average return of 8percent and standard deviation of 12percent. The average return and standard deviation of Hard Steelare 15 percent and 32 percent; and of All Energyare 11percent and 28percent.

A.Hard Steel, All Energy, New Tech

B.All Energy, Hard Steel, New Tech

C.All Energy, New Tech, Hard Steel

D.Hard Steel, New Tech, All Energy

E.New Tech, Hard Steel, All Energy

Answer 1

Answer 7:

C. (x) and (z)

Explanation:

Based on investment to be made, % weights, the numbers of shares are calculated below:

From above table, we observe that:

• statement x is correct
• statement y is incorrect
• statement z is correct

Hence option C is correct. Other options A, B, D and E are incorrect

Answer 8:

E. New Tech, Hard Steel, All Energy

Explanation:

Risk-return relationship can be measured by Coefficient of Variation which is equal to Standard deviation /Return. The lower the ratio better the risk-return trade-off.

Hence, the order for best to worst would be:

New Tech, Hard steel and All Energy

Hence option E is correct and other options A, B, C and D are incorrect.