fin 320 week 4 quiz
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FIN 320 Week 4 Quiz – Strayer
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Quiz 3 Cha&ter ' an$ (
Chapter 5: ___________________________________________________________________________
1. !u put up #$0 at the be%innin% !& the year &!r an in'e(tment. )he 'a*ue !& the in'e(tment %r!+( 4, andy!u earn a di'idend !& #3.$0. !ur +a( .
. 4,
. 3.$,
. ,
5. 11, 2. )he mea(ure !& return( i%n!re( 6!mp!undin%.
. %e!metri6 a'era%e
. arithmeti6 a'era%e
. I
5. d!**ar-+ei%hted 3. I& y!u +ant t! mea(ure the per&!rman6e !& y!ur in'e(tment in a &und7 in6*udin% the timin% !& y!ur
pur6ha(e( and redempti!n(7 y!u (h!u*d 6a*6u*ate the .
. %e!metri6 a'era%e return
. arithmeti6 a'era%e return
. d!**ar-+ei%hted return
5. inde8 return
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4. Whi6h !ne !& the &!**!+in% mea(ure( time-+ei%hted return( and a**!+( &!r 6!mp!undin%
. e!metri6 a'era%e return
. rithmeti6 a'era%e return
. 5!**ar-+ei%hted return
5. i(t!ri6a* a'era%e return $. ank the &!**!+in% &r!m hi%he(t a'era%e hi(t!ri6a* return t! *!+e(t a'era%e hi(t!ri6a* return &r!m 192; t!
2010.
I. Sma** (t!6k(II. <!n%-term b!nd(III. <ar%e (t!6k(I=. )-bi**(
. I7 II7 III7 I=
. III7 I=7 II7 I
. I7 III7 II7 I=
5. III7 I7 II7 I= ;. ank the &!**!+in% &r!m hi%he(t a'era%e hi(t!ri6a* (tandard de'iati!n t! *!+e(t a'era%e hi(t!ri6a* (tandard
de'iati!n &r!m 192; t! 2010.
I. Sma** (t!6k(II. <!n%-term b!nd(III. <ar%e (t!6k(I=. )-bi**(
. I7 II7 III7 I=
. III7 I=7 II7 I
. I7 III7 II7 I=
5. III7 I7 II7 I=
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. !u ha'e 6a*6u*ated the hi(t!ri6a* d!**ar-+ei%hted return7 annua* %e!metri6 a'era%e return7 and annua*arithmeti6 a'era%e return. I& y!u de(ire t! &!re6a(t per&!rman6e &!r ne8t year7 the be(t &!re6a(t +i** be %i'en by the .
. d!**ar-+ei%hted return
. %e!metri6 a'era%e return
. arithmeti6 a'era%e return
5. inde8 return >. )he 6!mp*ete p!rt&!*i! re&er( t! the in'e(tment in .
. the ri(k-&ree a((et
. the ri(ky p!rt&!*i!
. the ri(k-&ree a((et and the ri(ky p!rt&!*i! 6!mbined
5. the ri(ky p!rt&!*i! and the inde8 9. !u ha'e 6a*6u*ated the hi(t!ri6a* d!**ar-+ei%hted return7 annua* %e!metri6 a'era%e return7 and annua*
arithmeti6 a'era%e return. !u a*+ay( rein'e(t y!ur di'idend( and intere(t earned !n the p!rt&!*i!. Whi6hmeth!d pr!'ide( the be(t mea(ure !& the a6tua* a'era%e hi(t!ri6a* per&!rman6e !& the in'e(tment( y!u ha'e6h!(en
. 5!**ar-+ei%hted return
. e!metri6 a'era%e return
. rithmeti6 a'era%e return
5. Inde8 return 10. )he h!*din% peri!d return !n a (t!6k i( e?ua* t! .
. the 6apita* %ain yie*d !'er the peri!d p*u( the in&*ati!n rate
. the 6apita* %ain yie*d !'er the peri!d p*u( the di'idend yie*d
. the 6urrent yie*d p*u( the di'idend yie*d
5. the di'idend yie*d p*u( the ri(k premium
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11. !ur timin% +a( %!!d *a(t year. !u in'e(ted m!re in y!ur p!rt&!*i! ri%ht be&!re pri6e( +ent up7 and y!u(!*d ri%ht be&!re pri6e( +ent d!+n. In 6a*6u*atin% hi(t!ri6a* per&!rman6e mea(ure(7 +hi6h !ne !& the&!**!+in% +i** be the *ar%e(t
. 5!**ar-+ei%hted return
. e!metri6 a'era%e return
. rithmeti6 a'era%e return
5. @ean h!*din%-peri!d return 12. ub*i(hed data !n pa(t return( earned by mutua* &und( are re?uired t! be .
. d!**ar-+ei%hted return(
. %e!metri6 return(
. e86e(( return(
5. inde8 return( 13. )he arithmeti6 a'era%e !& -11,7 1$,7 and 20, i( .
. 1$.;,
. >,
. 11.22,
5. ;.4$, 14. )he %e!metri6 a'era%e !& -12,7 20,7 and 2$, i( .
. >.42,
. 11,
. 9.,
5. 1>.>>,
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1$. )he d!**ar-+ei%hted return i( the .
. di&&eren6e bet+een 6a(h in&*!+( and 6a(h !ut&*!+(
. arithmeti6 a'era%e return
. %e!metri6 a'era%e return
5. interna* rate !& return 1;. n in'e(tment earn( 10, the &ir(t year7 earn( 1$, the (e6!nd year7 and *!(e( 12, the third year. )he t!ta*
6!mp!und return !'er the 3 year( +a( .
. 41.;>,
. 11.32,
. 3.;4,
5. 13, 1. nnua* per6enta%e rate( 6an be 6!n'erted t! e&&e6ti'e annua* rate( by mean( !& the &!**!+in% &!rmu*a:
. A1 B C/nDEn - 1
. CDCnD
. C/nD
5. Cperi!di6 rateDCnD 1>. Supp!(e y!u pay #9700 &!r a #107000 par )rea(ury bi** maturin% in 3 m!nth(. What i( the h!*din%-peri!d
return &!r thi( in'e(tment
. 3.01,
. 3.09,
. 12.42,
5. 1;.1,
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19. Supp!(e y!u pay #97>00 &!r a #107000 par )rea(ury bi** maturin% in 2 m!nth(. What i( the annua* per6enta%e rate !& return &!r thi( in'e(tment
. 2.04,
. 12 ,
. 12.24,
5. 12.>9, 20. Supp!(e y!u pay #97400 &!r a #107000 par )rea(ury bi** maturin% in ; m!nth(. What i( the e&&e6ti'e annua*
rate !& return &!r thi( in'e(tment
. ;.3>,
. 12.,
. 13.1,
5. 14.2$, 21. !u ha'e an !& .$, +ith 6!ntinu!u( 6!mp!undin%. )he i( .
. .$,
. .;$,
. .9 ,
5. >.2$, 22. !u ha'e an !& 9,. )he e?ui'a*ent +ith 6!ntinu!u( 6!mp!undin% i( .
. >.4,
. >.;2,
. >.>>,
5. 9.42,
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23. )he market ri(k premium i( de&ined a( .
. the di&&eren6e bet+een the return !n an inde8 &und and the return !n )rea(ury bi**(
. the di&&eren6e bet+een the return !n a (ma**-&irm mutua* &und and the return !n the Standard G !!rH($00 Inde8
. the di&&eren6e bet+een the return !n the ri(ky a((et +ith the *!+e(t return( and the return !n )rea(ury bi**(
5. the di&&eren6e bet+een the return !n the hi%he(t-yie*din% a((et and the return !n the *!+e(t-yie*din%a((et
24. )he e86e(( return i( the .
. rate !& return that 6an be earned +ith 6ertainty
. rate !& return in e86e(( !& the )rea(ury-bi** rate
. rate !& return t! ri(k a'er(i!n
5. inde8 return 2$. )he rate !& return !n i( kn!+n at the be%innin% !& the h!*din% peri!d7 +hi*e the rate !& return !n
i( n!t kn!+n unti* the end !& the h!*din% peri!d.
. ri(ky a((et( )rea(ury bi**(
. )rea(ury bi**( ri(ky a((et(
. e86e(( return( ri(ky a((et(
5. inde8 a((et( b!nd( 2;. )he re+ard-t!-'!*ati*ity rati! i( %i'en by .
. the (*!pe !& the 6apita* a**!6ati!n *ine
. the (e6!nd deri'ati'e !& the 6apita* a**!6ati!n *ine
. the p!int at +hi6h the (e6!nd deri'ati'e !& the in'e(t!rH( indi&&eren6e 6ur'e rea6he( zer!
5. the p!rt&!*i!H( e86e(( return
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2. !ur in'e(tment ha( a 20, 6han6e !& earnin% a 30, rate !& return7 a $0, 6han6e !& earnin% a 10, rate !&return7 and a 30, 6han6e !& *!(in% ;,. What i( y!ur e8pe6ted return !n thi( in'e(tment
. 12.>,
. 11,
. >.9,
5. 9.2, 2>. !ur in'e(tment ha( a 40, 6han6e !& earnin% a 1$, rate !& return7 a $0, 6han6e !& earnin% a 10, rate !&
return7 and a 10, 6han6e !& *!(in% 3,. What i( the (tandard de'iati!n !& thi( in'e(tment
. $.14,
. .$9,
. 9.29,
5. >.43, 29. 5urin% the 192;-2010 peri!d the %e!metri6 mean return !n (ma**-&irm (t!6k( +a( .
. $.31,
. $.$;,
. 9.34,
5. 11.>0, 30. 5urin% the 192;-2010 peri!d the %e!metri6 mean return !n )rea(ury b!nd( +a( .
. $.12,
. $.$;,
. 9.34,
5. 11.43,
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31. 5urin% the 192;-2010 peri!d the Sharpe rati! +a( %reate(t &!r +hi6h !& the &!**!+in% a((et 6*a((e(
. Sma** J.S. (t!6k(
. <ar%e J.S. (t!6k(
. <!n%-term J.S. )rea(ury b!nd(
5. !nd +!r*d p!rt&!*i! return in J.S. d!**ar( 32. 5urin% the 19>$-2010 peri!d the Sharpe rati! +a( *!+e(t &!r +hi6h !& the &!**!+in% a((et 6*a((e(
. Sma** J.S. (t!6k(
. <ar%e J.S. (t!6k(
. <!n%-term J.S. )rea(ury b!nd(
5. ?uity +!r*d p!rt&!*i! in J.S. d!**ar( 33. 5urin% the 192;-2010 peri!d +hi6h !ne !& the &!**!+in% a((et 6*a((e( pr!'ided the *!+e(t rea* return
. Sma** J.S. (t!6k(
. <ar%e J.S. (t!6k(
. <!n%-term J.S. )rea(ury b!nd(
5. ?uity +!r*d p!rt&!*i! in J.S. d!**ar( 34. !th in'e(t!r( and %amb*er( take !n ri(k. )he di&&eren6e bet+een an in'e(t!r and a %amb*er i( that an
in'e(t!r .
. i( n!rma**y ri(k neutra*
. re?uire( a ri(k premium t! take !n the ri(k
. kn!+( he !r (he +i** n!t *!(e m!ney
5. kn!+( the !ut6!me( at the be%innin% !& the h!*din% peri!d
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3$. i(t!ri6a* return( ha'e %enera**y been &!r (t!6k( !& (ma** &irm( a( CthanD &!r (t!6k( !& *ar%e&irm(.
. the (ame
. *!+er
. hi%her
5. n!ne !& the(e !pti!n( C)here i( n! e'iden6e !& a (y(temati6 re*ati!n(hip bet+een return( !n (ma**-&irm(t!6k( and return( !n *ar%e-&irm (t!6k(.D
3;. i(t!ri6a**y7 (ma**-&irm (t!6k( ha'e earned hi%her return( than *ar%e-&irm (t!6k(. When 'ie+ed in the
6!nte8t !& an e&&i6ient market7 thi( (u%%e(t( that .
. (ma** &irm( are better run than *ar%e &irm(
. %!'ernment (ub(idie( a'ai*ab*e t! (ma** &irm( pr!du6e e&&e6t( that are di(6ernib*e in (t!6k market(tati(ti6(
. (ma** &irm( are ri(kier than *ar%e &irm(
5. (ma** &irm( are n!t bein% a66urate*y repre(ented in the data 3. In 6a*6u*atin% the 'arian6e !& a p!rt&!*i!H( return(7 (?uarin% the de'iati!n( &r!m the mean re(u*t( in:
I. re'entin% the (um !& the de'iati!n( &r!m a*+ay( e?ua*in% zer!II. 8a%%eratin% the e&&e6t( !& *ar%e p!(iti'e and ne%ati'e de'iati!n(
III. number &!r +hi6h the unit i( per6enta%e !& return(
. I !n*y
. I and II !n*y
. I and III !n*y
5. I7 II7 and III
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3>. I& y!u are pr!mi(ed a n!mina* return !& 12, !n a 1-year in'e(tment7 and y!u e8pe6t the rate !& in&*ati!n t! be 3,7 +hat rea* rate d! y!u e8pe6t t! earn
. $.4>,
. >.4,
. 9,
5. 12, 39. I& y!u re?uire a rea* %r!+th in the pur6ha(in% p!+er !& y!ur in'e(tment !& >,7 and y!u e8pe6t the rate !&
in&*ati!n !'er the ne8t year t! be 3,7 +hat i( the *!+e(t n!mina* return that y!u +!u*d be (ati(&ied +ith
. 3,
. >,
. 11,
5. 11.24, 40. Kne meth!d !& &!re6a(tin% the ri(k premium i( t! u(e the .
. 6!e&&i6ient !& 'ariati!n !& ana*y(t(H earnin%( &!re6a(t(
. 'ariati!n( in the ri(k-&ree rate !'er time
. a'era%e hi(t!ri6a* e86e(( return( &!r the a((et under 6!n(iderati!n
5. a'era%e abn!rma* return !n the inde8 p!rt&!*i! 41. )rea(ury bi**( are payin% a 4, rate !& return. ri(k-a'er(e in'e(t!r +ith a ri(k a'er(i!n !& A L 3 (h!u*d
in'e(t entire*y in a ri(ky p!rt&!*i! +ith a (tandard de'iati!n !& 24, !n*y i& the ri(ky p!rt&!*i!H( e8pe6tedreturn i( at *ea(t .
. >.;,
. 9.>4,
. 21.2>,
5. 14.;>,
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42. In the mean (tandard de'iati!n %raph7 the *ine that 6!nne6t( the ri(k-&ree rate and the !ptima* ri(ky p!rt&!*i!7 P 7 i( 6a**ed the .
. 6apita* a**!6ati!n *ine
. indi&&eren6e 6ur'e
. in'e(t!rH( uti*ity *ine
5. (e6urity market *ine 43. @!(t (tudie( indi6ate that in'e(t!r(H ri(k a'er(i!n i( in the ran%e .
. 1-3
. 1.$-4
. 3-$.2
5. 4-; 44. )+! a((et( ha'e the &!**!+in% e8pe6ted return( and (tandard de'iati!n( +hen the ri(k-&ree rate i( $,:
n in'e(t!r +ith a ri(k a'er(i!n !& A L 3 +!u*d &ind that !n a ri(k-return ba(i(.
. !n*y a((et i( a66eptab*e
. !n*y a((et i( a66eptab*e
. neither a((et n!r a((et i( a66eptab*e
5. b!th a((et and a((et are a66eptab*e 4$. i(t!ri6a**y7 the be(t a((et &!r the *!n%-term in'e(t!r +antin% t! &end !&& the threat( !& in&*ati!n and ta8e(
+hi*e makin% hi( m!ney %r!+ ha( been .
. St!6k(
. !nd(
. @!ney market &und(
5. )rea(ury bi**(
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4;.
)he &!rmu*a i( u(ed t! 6a*6u*ate the .
. Sharpe rati!
. )reyn!r mea(ure
. !e&&i6ient !& 'ariati!n
5. ea* rate !& return 4. p!rt&!*i! +ith a 2$, (tandard de'iati!n %enerated a return !& 1$, *a(t year +hen )-bi**( +ere payin%
4.$,. )hi( p!rt&!*i! had a Sharpe rati! !& .
. .22
. .;0
. .42
5. .2$ 4>. !n(ider a )rea(ury bi** +ith a rate !& return !& $, and the &!**!+in% ri(ky (e6uritie(:
Se6urity : E Cr D L .1$ 'arian6e L .0400Se6urity : E Cr D L .10 'arian6e L .022$Se6urity : E Cr D L .12 'arian6e L .1000
Se6urity 5: E Cr D L .13 'arian6e L .0;2$
)he in'e(t!r mu(t de'e*!p a 6!mp*ete p!rt&!*i! by 6!mbinin% the ri(k-&ree a((et +ith !ne !& the (e6uritie(menti!ned ab!'e. )he (e6urity the in'e(t!r (h!u*d 6h!!(e a( part !& her 6!mp*ete p!rt&!*i! t! a6hie'e the be(t < +!u*d be .
. (e6urity
. (e6urity
. (e6urity
5. (e6urity 5
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49. !u pur6ha(ed a (hare !& (t!6k &!r #29. Kne year *ater y!u re6ei'ed #2.2$ a( di'idend and (!*d the (hare&!r #2>. !ur h!*din%-peri!d return +a( .
. -3.$,
. -3.4$,
. 4.31,
5. >.03, $0. Se6urity ha( a hi%her (tandard de'iati!n !& return( than (e6urity . We +!u*d e8pe6t that:
I. Se6urity +!u*d ha'e a hi%her ri(k premium than (e6urity .II. )he *ike*y ran%e !& return( &!r (e6urity in any %i'en year +!u*d be hi%her than the *ike*y ran%e !&return( &!r (e6urity .III. )he Sharpe rati! !& +i** be hi%her than the Sharpe rati! !& .
. I !n*y
. I and II !n*y
. II and III !n*y
5. I7 II7 and III $1. )he h!*din%-peri!d return !n a (t!6k +a( 2$,. It( endin% pri6e +a( #1>7 and it( be%innin% pri6e +a( #1;.
It( 6a(h di'idend mu(t ha'e been .
. #.2$
. #1
. #2
5. #4
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$2. n in'e(t!r in'e(t( 0, !& her +ea*th in a ri(ky a((et +ith an e8pe6ted rate !& return !& 1$, and a 'arian6e!& $,7 and (he put( 30, in a )rea(ury bi** that pay( $,. er p!rt&!*i!H( e8pe6ted rate !& return and(tandard de'iati!n are and re(pe6ti'e*y.
. 10, ;.,
. 12, 22.4,
. 12, 1$.,
5. 10, 3$, $3. )he h!*din%-peri!d return !n a (t!6k +a( 32,. It( be%innin% pri6e +a( #2$7 and it( 6a(h di'idend +a(
#1.$0. It( endin% pri6e mu(t ha'e been .
. #2>.$0
. #33.20
. #31.$0
5. #29.$ $4. !n(ider the &!**!+in% t+! in'e(tment a*ternati'e(: Fir(t7 a ri(ky p!rt&!*i! that pay( a 1$, rate !& return
+ith a pr!babi*ity !& 40, !r a $, rate !& return +ith a pr!babi*ity !& ;0,. Se6!nd7 a )rea(ury bi** that pay(;,. )he ri(k premium !n the ri(ky in'e(tment i( .
. 1,
. 3,
. ;,
5. 9, $$. !n(ider the &!**!+in% t+! in'e(tment a*ternati'e(: Fir(t7 a ri(ky p!rt&!*i! that pay( a 20, rate !& return
+ith a pr!babi*ity !& ;0, !r a $, rate !& return +ith a pr!babi*ity !& 40,. Se6!nd7 a )rea(ury bi** that pay(;,. I& y!u in'e(t #$07000 in the ri(ky p!rt&!*i!7 y!ur e8pe6ted pr!&it +!u*d be .
. #37000
. #7000
. #7$00
5. #107000
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$;. !u in'e(t #107000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !& a ri(ky a((et +ith ane8pe6ted rate !& return !& 1$, and a (tandard de'iati!n !& 21, and a )rea(ury bi** +ith a rate !& return !&$,. !+ mu6h m!ney (h!u*d be in'e(ted in the ri(ky a((et t! &!rm a p!rt&!*i! +ith an e8pe6ted return !&11,
. #;7000
. #47000
. #7000
5. #37000 $. !u in'e(t #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !& a ri(ky a((et +ith an
e8pe6ted rate !& return !& 1;, and a (tandard de'iati!n !& 20, and a )rea(ury bi** +ith a rate !& return !&;,. !& y!ur 6!mp*ete p!rt&!*i! (h!u*d be in'e(ted in the ri(ky p!rt&!*i! i& y!u +ant y!ur6!mp*ete p!rt&!*i! t! ha'e a (tandard de'iati!n !& 9,.
. 100,
. 90,
. 4$,
5. 10, $>. !u in'e(t #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !& a ri(ky a((et +ith an
e8pe6ted rate !& return !& 1;, and a (tandard de'iati!n !& 20, and a )rea(ury bi** +ith a rate !& return !&
;,. p!rt&!*i! that ha( an e8pe6ted 'a*ue in 1 year !& #17100 6!u*d be &!rmed i& y!u .
. p*a6e 40, !& y!ur m!ney in the ri(ky p!rt&!*i! and the re(t in the ri(k-&ree a((et
. p*a6e $$, !& y!ur m!ney in the ri(ky p!rt&!*i! and the re(t in the ri(k-&ree a((et
. p*a6e ;0, !& y!ur m!ney in the ri(ky p!rt&!*i! and the re(t in the ri(k-&ree a((et
5. p*a6e $, !& y!ur m!ney in the ri(ky p!rt&!*i! and the re(t in the ri(k-&ree a((et
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$9. !u in'e(t #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !& a ri(ky a((et +ith ane8pe6ted rate !& return !& 1;, and a (tandard de'iati!n !& 20, and a )rea(ury bi** +ith a rate !& return !&;,. )he (*!pe !& the 6apita* a**!6ati!n *ine &!rmed +ith the ri(ky a((et and the ri(k-&ree a((et i(appr!8imate*y .
. 1.040
. .>0
. .$0
5. .2$ ;0. !u ha'e #$007000 a'ai*ab*e t! in'e(t. )he ri(k-&ree rate7 a( +e** a( y!ur b!rr!+in% rate7 i( >,. )he return
!n the ri(ky p!rt&!*i! i( 1;,. I& y!u +i(h t! earn a 22, return7 y!u (h!u*d .
. in'e(t #12$7000 in the ri(k-&ree a((et
. in'e(t #3$7000 in the ri(k-&ree a((et
. b!rr!+ #12$7000
5. b!rr!+ #3$7000 ;1. )he return !n the ri(ky p!rt&!*i! i( 1$,. )he ri(k-&ree rate7 a( +e** a( the in'e(t!rH( b!rr!+in% rate7 i( 10,.
)he (tandard de'iati!n !& return !n the ri(ky p!rt&!*i! i( 20,. I& the (tandard de'iati!n !n the 6!mp*ete p!rt&!*i! i( 2$,7 the e8pe6ted return !n the 6!mp*ete p!rt&!*i! i( .
. ;,
. >.$ ,
. 10,
5. 1;.2$,
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;2. !u are 6!n(iderin% in'e(tin% #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !&)rea(ury bi**( that pay $, and a ri(ky p!rt&!*i!7 P 7 6!n(tru6ted +ith t+! ri(ky (e6uritie(7 M and . )he!ptima* +ei%ht( !& M and in P are ;0, and 40,7 re(pe6ti'e*y. M ha( an e8pe6ted rate !& return !& 14,7and ha( an e8pe6ted rate !& return !& 10,. )! &!rm a 6!mp*ete p!rt&!*i! +ith an e8pe6ted rate !& return!& 11,7 y!u (h!u*d in'e(t !& y!ur 6!mp*ete p!rt&!*i! in )rea(ury bi**(.
. 19,
. 2$,
. 3;,
5. $0, ;3. !u are 6!n(iderin% in'e(tin% #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !&
)rea(ury bi**( that pay $, and a ri(ky p!rt&!*i!7 P 7 6!n(tru6ted +ith t+! ri(ky (e6uritie(7 M and . )he!ptima* +ei%ht( !& M and in P are ;0, and 40, re(pe6ti'e*y. M ha( an e8pe6ted rate !& return !& 14,7and ha( an e8pe6ted rate !& return !& 10,. )! &!rm a 6!mp*ete p!rt&!*i! +ith an e8pe6ted rate !& return
!& >,7 y!u (h!u*d in'e(t appr!8imate*y in the ri(ky p!rt&!*i!. )hi( +i** mean y!u +i** a*(!in'e(t appr!8imate*y and !& y!ur 6!mp*ete p!rt&!*i! in (e6urity M and 7re(pe6ti'e*y.
. 0, ;0, 40,
. 2$, 4$, 30,
. 40, 24, 1;,
5. $0, 30, 20, ;4. !u are 6!n(iderin% in'e(tin% #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !&
)rea(ury bi**( that pay $, and a ri(ky p!rt&!*i!7 P 7 6!n(tru6ted +ith t+! ri(ky (e6uritie(7 M and . )he!ptima* +ei%ht( !& M and in P are ;0, and 40,7 re(pe6ti'e*y. M ha( an e8pe6ted rate !& return !& 14,7and ha( an e8pe6ted rate !& return !& 10,. I& y!u de6ide t! h!*d 2$, !& y!ur 6!mp*ete p!rt&!*i! in theri(ky p!rt&!*i! and $, in the )rea(ury bi**(7 then the d!**ar 'a*ue( !& y!ur p!(iti!n( in M and 7re(pe6ti'e*y7 +!u*d be and .
. #300 #4$0
. #1$0 #100
. #100 #1$0
5. #4$0 #300
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;$. !u are 6!n(iderin% in'e(tin% #17000 in a 6!mp*ete p!rt&!*i!. )he 6!mp*ete p!rt&!*i! i( 6!mp!(ed !&)rea(ury bi**( that pay $, and a ri(ky p!rt&!*i!7 P 7 6!n(tru6ted +ith t+! ri(ky (e6uritie(7 M and . )he!ptima* +ei%ht( !& M and in P are ;0, and 40,7 re(pe6ti'e*y. M ha( an e8pe6ted rate !& return !& 14,7and ha( an e8pe6ted rate !& return !& 10,. )he d!**ar 'a*ue( !& y!ur p!(iti!n( in M7 7 and )rea(ury bi**(+!u*d be 7 7 and 7 re(pe6ti'e*y7 i& y!u de6ide t! h!*d a 6!mp*ete p!rt&!*i! that ha( an e8pe6ted return !& >,.
. #1;2 #$9$ #243
. #243 #1;2 #$9$
. #$9$ #1;2 #243
5. #$9$ #243 #1;2 ;;. !u ha'e the &!**!+in% rate( !& return &!r a ri(ky p!rt&!*i! &!r (e'era* re6ent year(:
I& y!u in'e(ted #17000 at the be%innin% !& 200>7 y!ur in'e(tment at the end !& 2011 +!u*d be +!rth .
. #271;.;0
. #17>$.$;
. #17;4$.$3
5. #1724.>
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;. !u ha'e the &!**!+in% rate( !& return &!r a ri(ky p!rt&!*i! &!r (e'era* re6ent year(:
)he annua*ized C%e!metri6D a'era%e return !n thi( in'e(tment i( .
. 1;.1$,
. 1;.>,
. 21.32,
5. 1$.;0, ;>. (e6urity +ith n!rma**y di(tributed return( ha( an annua* e8pe6ted return !& 1>, and (tandard de'iati!n
!& 23,. )he pr!babi*ity !& %ettin% a return bet+een -2>, and ;4, in any !ne year i( .
. ;>.2;,
. 9$.44,
. 99.4,
5. 100,
;9. )he @anha+kin Fund ha( an e8pe6ted return !& 1;, and a (tandard de'iati!n !& 20,. )he ri(k-&ree rate i(4,. What i( the re+ard-t!-'!*ati*ity rati! &!r the @anha+kin Fund
. .>
. .;
. 9
5. 1
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0. Fr!m 192; t! 2010 the +!r*d (t!6k p!rt&!*i! !&&ered return and '!*ati*ity than the p!rt&!*i! !&*ar%e J.S. (t!6k(.
. *!+er hi%her
. *!+er *!+er
. hi%her *!+er
5. hi%her hi%her 1. )he pri6e !& a (t!6k i( #$$ at the be%innin% !& the year and #$0 at the end !& the year. I& the (t!6k paid a #3
di'idend and in&*ati!n +a( 3,7 +hat i( the rea* h!*din%-peri!d return &!r the year
. -3.;4,
. -;.3;,
. -;.44,
5. -11.4, 2. )he pri6e !& a (t!6k i( #3> at the be%innin% !& the year and #41 at the end !& the year. I& the (t!6k paid a
#2.$0 di'idend7 +hat i( the h!*din%-peri!d return &!r the year
. ;.$>,
. >.>;,
. 14.4,
5. 1>.;;, 3. !u in'e(t a** !& y!ur m!ney in 1-year )-bi**(. Whi6h !& the &!**!+in% (tatement( i( CareD 6!rre6t
I. !ur n!mina* return !n the )-bi**( i( ri(k*e((.II. !ur rea* return !n the )-bi**( i( ri(k*e((.III. !ur n!mina* Sharpe rati! i( zer!.
. I !n*y
. I and III !n*y
. II !n*y
5. I7 II7 and III
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4. Whi6h !ne !& the &!**!+in% +!u*d be 6!n(idered a ri(k-&ree a((et in rea* term( a( !pp!(ed t! n!mina*
. @!ney market &und
. J.S. )-bi**
. Sh!rt-term 6!rp!rate b!nd(
5. J.S. )-bi** +h!(e return +a( inde8ed t! in&*ati!n $. What i( the %e!metri6 a'era%e return !& the &!**!+in% ?uarter*y return(: 3,7 $,7 4,7 and ,
. 3.2,
. 4.23,
. 4.4,
5. 4.90, ;. What i( the %e!metri6 a'era%e return !'er 1 year i& the ?uarter*y return( are >,7 9,7 $,7 and 12,
. >,
. >.33 ,
. >.4,
5. >.$ , . I& the n!mina* rate !& return !n in'e(tment i( ;, and in&*ati!n i( 2, !'er a h!*din% peri!d7 +hat i( the rea*
rate !& return !n thi( in'e(tment
. 3.92,
. 4,
. 4.12,
5. ;,
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>. 66!rdin% t! hi(t!ri6a* data7 !'er the *!n% run +hi6h !& the &!**!+in% a((et( ha( the be(t 6han6e t! pr!'idethe be(t a&ter-in&*ati!n7 a&ter-ta8 rate !& return
. <!n%-term )rea(ury b!nd(
. !rp!rate b!nd(
. !mm!n (t!6k(
5. re&erred (t!6k( 9. )he buyer !& a ne+ h!me i( ?u!ted a m!rt%a%e rate !& .$, per m!nth. What i( the !n the *!an
. .$0,
. $,
. ;,
5. ;.$, >0. *!an &!r a ne+ 6ar 6!(t( the b!rr!+er .>, per m!nth. What i( the
. .>0,
. ;.>,
. 9.;,
5. 10.03, >1. )he < pr!'ided by 6!mbinati!n( !& 1-m!nth )-bi**( and a br!ad inde8 !& 6!mm!n (t!6k( i( 6a**ed the
.
. S@<
. @
. @<
5. t!ta* return *ine
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>2. Whi6h !& the &!**!+in% ar%ument( (upp!rtin% pa((i'e in'e(tment (trate%ie( i( CareD 6!rre6t
I. 6ti'e tradin% (trate%ie( may n!t %uarantee hi%her return( but %uarantee hi%her 6!(t(.II. a((i'e in'e(t!r( 6an &ree-ride !n the a6ti'ity !& kn!+*ed%e in'e(t!r( +h!(e trade( &!r6e pri6e( t! re&*e6t6urrent*y a'ai*ab*e in&!rmati!n.III. a((i'e in'e(t!r( are %uaranteed t! earn hi%her rate( !& return than a6ti'e in'e(t!r( !'er (u&&i6ient*y*!n% time h!riz!n(.
. I !n*y
. I and II !n*y
. II and III !n*y
5. I7 II7 and III >3. !u ha'e the &!**!+in% rate( !& return &!r a ri(ky p!rt&!*i! &!r (e'era* re6ent year(. ((ume that the (t!6k
pay( n! di'idend(.
What i( the %e!metri6 a'era%e return &!r the peri!d
. 2.>,
. .4,
. 2.;,
5. 2.21,
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>4. !u ha'e the &!**!+in% rate( !& return &!r a ri(ky p!rt&!*i! &!r (e'era* re6ent year(. ((ume that the (t!6k pay( n! di'idend(.
What i( the d!**ar-+ei%hted return !'er the entire time peri!d
. 2.>,
. .4,
. 2.;,
5. 2.21,
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Chapter 6:
_____________________________________________________________________
______
1. i(k that 6an be e*iminated thr!u%h di'er(i&i6ati!n i( 6a**ed ri(k.
. uni?ue
. &irm-(pe6i&i6
. di'er(i&iab*e
5. a** !& the(e !pti!n(
2. )he de6i(i!n (h!u*d take pre6eden6e !'er the de6i(i!n.
. a((et a**!6ati!n (t!6k (e*e6ti!n
. b!nd (e*e6ti!n mutua* &und (e*e6ti!n
. (t!6k (e*e6ti!n a((et a**!6ati!n
5. (t!6k (e*e6ti!n mutua* &und (e*e6ti!n
3. @any 6urrent and retired nr!n !rp. emp*!yee( had their 401k retirementa66!unt( +iped !ut +hen nr!n 6!**ap(ed be6au(e .
. they had t! pay hu%e &ine( &!r !b(tru6ti!n !& u(ti6e
. their 401k a66!unt( +ere he*d !ut(ide the 6!mpany
. their 401k a66!unt( +ere n!t +e** di'er(i&ied
5. n!ne !& the(e !pti!n(
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4. a(ed !n the !ut6!me( in the &!**!+in% tab*e7 6h!!(e +hi6h !& the (tatement( be*!+ i( CareD 6!rre6t
I. )he 6!'arian6e !& (e6urity and (e6urity i( zer!.II. )he 6!rre*ati!n 6!e&&i6ient bet+een (e6uritie( and i( ne%ati'e.III. )he 6!rre*ati!n 6!e&&i6ient bet+een (e6uritie( and i( p!(iti'e.
. I !n*y
. I and II !n*y
. II and III !n*y
5. I7 II7 and III $. ((et ha( an e8pe6ted return !& 1$, and a re+ard-t!-'ariabi*ity rati! !& .4.
((et ha( an e8pe6ted return !& 20, and a re+ard-t!-'ariabi*ity rati! !& .3. ri(k-a'er(e in'e(t!r +!u*d pre&er a p!rt&!*i! u(in% the ri(k-&ree a((et and .
. a((et
. a((et
. n! ri(ky a((et
5. )he an(+er 6ann!t be determined &r!m the data %i'en. ;. ddin% additi!na* ri(ky a((et( t! the in'e(tment !pp!rtunity (et +i** %enera**y
m!'e the e&&i6ient &r!ntier and t! the .
. up ri%ht
. up *e&t
. d!+n ri%ht
5. d!+n *e&t
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. n in'e(t!rH( de%ree !& ri(k a'er(i!n +i** determine hi( !r her .
. !ptima* ri(ky p!rt&!*i!
. ri(k-&ree rate
. !ptima* mi8 !& the ri(k-&ree a((et and ri(ky a((et
5. 6apita* a**!6ati!n *ine >. )he i( e?ua* t! the (?uare r!!t !& the (y(temati6 'arian6e di'ided by the
t!ta* 'arian6e.
. 6!'arian6e
. 6!rre*ati!n 6!e&&i6ient
. (tandard de'iati!n
5. re+ard-t!-'ariabi*ity rati! 9. Whi6h !& the &!**!+in% (tati(ti6( 6ann!t be ne%ati'e
. !'arian6e
. =arian6e
. E CrD
5. !rre*ati!n 6!e&&i6ient 10. ((et ha( an e8pe6ted return !& 20, and a (tandard de'iati!n !& 2$,. )he ri(k-
&ree rate i( 10,. What i( the re+ard-t!-'ariabi*ity rati!
. .40
. .$0
. .$
5. .>0
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11.)he 6!rre*ati!n 6!e&&i6ient bet+een t+! a((et( e?ua*( .
. their 6!'arian6e di'ided by the pr!du6t !& their 'arian6e(
. the pr!du6t !& their 'arian6e( di'ided by their 6!'arian6e
. the (um !& their e8pe6ted return( di'ided by their 6!'arian6e
5. their 6!'arian6e di'ided by the pr!du6t !& their (tandard de'iati!n( 12.5i'er(i&i6ati!n i( m!(t e&&e6ti'e +hen (e6urity return( are .
. hi%h
. ne%ati'e*y 6!rre*ated
. p!(iti'e*y 6!rre*ated
5. un6!rre*ated 13.)he e8pe6ted rate !& return !& a p!rt&!*i! !& ri(ky (e6uritie( i( .
. the (um !& the (e6uritie(H 6!'arian6e(
. the (um !& the (e6uritie(H 'arian6e(
. the +ei%hted (um !& the (e6uritie(H e8pe6ted return(
5. the +ei%hted (um !& the (e6uritie(H 'arian6e( 14.eta i( a mea(ure !& (e6urity re(p!n(i'ene(( t! .
. &irm-(pe6i&i6 ri(k
. di'er(i&iab*e ri(k
. market ri(k
5. uni?ue ri(k
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1$.)he ri(k that 6an be di'er(i&ied a+ay i( .
. beta
. &irm-(pe6i&i6 ri(k
. market ri(k
5. (y(temati6 ri(k 1;. ppr!8imate*y h!+ many (e6uritie( d!e( it take t! di'er(i&y a*m!(t a** !& the
uni?ue ri(k &r!m a p!rt&!*i!
. 2
. ;
. >
5. 20 1.!n(ider an in'e(tment !pp!rtunity (et &!rmed +ith t+! (e6uritie( that are
per&e6t*y ne%ati'e*y 6!rre*ated. )he %*!ba* minimum-'arian6e p!rt&!*i! ha( a(tandard de'iati!n that i( a*+ay( .
. e?ua* t! the (um !& the (e6uritie(H (tandard de'iati!n(
. e?ua* t! -1
. e?ua* t! 0
5. %reater than 0 1>.@arket ri(k i( a*(! 6a**ed and .
. (y(temati6 ri(k di'er(i&iab*e ri(k
. (y(temati6 ri(k n!ndi'er(i&iab*e ri(k
. uni?ue ri(k n!ndi'er(i&iab*e ri(k
5. uni?ue ri(k di'er(i&iab*e ri(k
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19.Firm-(pe6i&i6 ri(k i( a*(! 6a**ed and .
. (y(temati6 ri(k di'er(i&iab*e ri(k
. (y(temati6 ri(k n!ndi'er(i&iab*e ri(k
. uni?ue ri(k n!ndi'er(i&iab*e ri(k
5. uni?ue ri(k di'er(i&iab*e ri(k 20.Whi6h !ne !& the &!**!+in% (t!6k return (tati(ti6( &*u6tuate( the m!(t !'er time
. !'arian6e !& return(
. =arian6e !& return(
. 'era%e return
5. !rre*ati!n 6!e&&i6ient 21. arry @ark!+itz i( be(t kn!+n &!r hi( N!be* rize-+innin% +!rk !n
.
. (trate%ie( &!r a6ti'e (e6uritie( tradin%
. te6hni?ue( u(ed t! identi&y e&&i6ient p!rt&!*i!( !& ri(ky a((et(
. te6hni?ue( u(ed t! mea(ure the (y(temati6 ri(k !& (e6uritie(
5. te6hni?ue( u(ed in 'a*uin% (e6uritie( !pti!n( 22.Supp!(e that a (t!6k p!rt&!*i! and a b!nd p!rt&!*i! ha'e a zer! 6!rre*ati!n. )hi(
mean( that .
. the return( !n the (t!6k and b!nd p!rt&!*i!( tend t! m!'e in'er(e*y
. the return( !n the (t!6k and b!nd p!rt&!*i!( tend t! 'ary independent*y !& ea6h!ther
. the return( !n the (t!6k and b!nd p!rt&!*i!( tend t! m!'e t!%ether
5. the 6!'arian6e !& the (t!6k and b!nd p!rt&!*i!( +i** be p!(iti'e
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23. !u put ha*& !& y!ur m!ney in a (t!6k p!rt&!*i! that ha( an e8pe6ted return !& 14,and a (tandard de'iati!n !& 24,. !u put the re(t !& y!ur m!ney in a ri(ky b!nd
p!rt&!*i! that ha( an e8pe6ted return !& ;, and a (tandard de'iati!n !& 12,. )he(t!6k and b!nd p!rt&!*i!( ha'e a 6!rre*ati!n !& .$$. )he (tandard de'iati!n !& there(u*tin% p!rt&!*i! +i** be .
. m!re than 1>, but *e(( than 24,
. e?ua* t! 1>,
. m!re than 12, but *e(( than 1>,
5. e?ua* t! 12, 24.Kn a (tandard e8pe6ted return 'er(u( (tandard de'iati!n %raph7 in'e(t!r( +i**
pre&er p!rt&!*i!( that *ie t! the !& the 6urrent in'e(tment!pp!rtunity (et.
. *e&t and ab!'e
. *e&t and be*!+
. ri%ht and ab!'e
5. ri%ht and be*!+ 2$.)he term complete portfolio re&er( t! a p!rt&!*i! 6!n(i(tin% !&
.
. the ri(k-&ree a((et 6!mbined +ith at *ea(t !ne ri(ky a((et
. the market p!rt&!*i! 6!mbined +ith the minimum-'arian6e p!rt&!*i!
. (e6uritie( &r!m d!me(ti6 market( 6!mbined +ith (e6uritie( &r!m &!rei%n
market(
5. 6!mm!n (t!6k( 6!mbined +ith b!nd(
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2;.ati!na* ri(k-a'er(e in'e(t!r( +i** a*+ay( pre&er p!rt&!*i!( .
. *!6ated !n the e&&i6ient &r!ntier t! th!(e *!6ated !n the 6apita* market *ine
. *!6ated !n the 6apita* market *ine t! th!(e *!6ated !n the e&&i6ient &r!ntier
. at !r near the minimum-'arian6e p!int !n the e&&i6ient &r!ntier
5. that are ri(k-&ree t! a** !ther a((et 6h!i6e( 2.)he !ptima* ri(ky p!rt&!*i! 6an be identi&ied by &indin%:
I. )he minimum-'arian6e p!int !n the e&&i6ient &r!ntier II. )he ma8imum-return p!int !n the e&&i6ient &r!ntier and the minimum-'arian6e
p!int !n the e&&i6ient &r!ntier
III. )he tan%en6y p!int !& the 6apita* market *ine and the e&&i6ient &r!ntier I=. )he *ine +ith the (teepe(t (*!pe that 6!nne6t( the ri(k-&ree rate t! the e&&i6ient&r!ntier
. I and II !n*y
. II and III !n*y
. III and I= !n*y
5. I and I= !n*y 2>.)he re+ard-t!-'ariabi*ity rati! i( &!und !n the 6apita*
market *ine.
. *!+e(t (teepe(t
. hi%he(t &*atte(t
. hi%he(t (teepe(t
5. *!+e(t &*atte(t
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29. p!rt&!*i! i( 6!mp!(ed !& t+! (t!6k(7 and . St!6k ha( a (tandard de'iati!n!& return !& 24,7 +hi*e (t!6k ha( a (tandard de'iati!n !& return !& 1>,. St!6k 6!mpri(e( ;0, !& the p!rt&!*i!7 +hi*e (t!6k 6!mpri(e( 40, !& the p!rt&!*i!. I&the 'arian6e !& return !n the p!rt&!*i! i( .03>07 the 6!rre*ati!n 6!e&&i6ient bet+eenthe return( !n and i( .
. .$>3
. .22$
. .32
5. .12> 30. )he (tandard de'iati!n !& return !n in'e(tment i( .107 +hi*e the (tandard
de'iati!n !& return !n in'e(tment i( .0$. I& the 6!'arian6e !& return( !n and i( .00307 the 6!rre*ati!n 6!e&&i6ient bet+een the return( !n and i( .
. .12
. .3;
. .;0
5. . 31. p!rt&!*i! i( 6!mp!(ed !& t+! (t!6k(7 and . St!6k ha( a (tandard de'iati!n
!& return !& 3$,7 +hi*e (t!6k ha( a (tandard de'iati!n !& return !& 1$,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !n and i( .4$. St!6k 6!mpri(e(40, !& the p!rt&!*i!7 +hi*e (t!6k 6!mpri(e( ;0, !& the p!rt&!*i!. )he (tandardde'iati!n !& the return !n thi( p!rt&!*i! i( .
. 23,
. 19.;,
. 1>.4$,
5. 1.;,
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32. )he (tandard de'iati!n !& return !n in'e(tment i( .107 +hi*e the (tandardde'iati!n !& return !n in'e(tment i( .04. I& the 6!rre*ati!n 6!e&&i6ient bet+eenthe return( !n and i( -.$07 the 6!'arian6e !& return( !n and i( .
. -.044
. -.0020
. .0020
5. .044 33. !n(ider t+! per&e6t*y ne%ati'e*y 6!rre*ated ri(ky (e6uritie(7 and . Se6urity
ha( an e8pe6ted rate !& return !& 1;, and a (tandard de'iati!n !& return !& 20,. ha( an e8pe6ted rate !& return !& 10, and a (tandard de'iati!n !& return !& 30,.
)he +ei%ht !& (e6urity in the minimum-'arian6e p!rt&!*i! i( .
. 10,
. 20,
. 40,
5. ;0, 34. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . St!6k ha(
an e8pe6ted return !& 1>, and a (tandard de'iati!n !& return !& 20,. St!6k ha(an e8pe6ted return !& 14, and a (tandard de'iati!n !& return !& $,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !& and i( .$0. )he ri(k-&ree rate !&return i( 10,. )he pr!p!rti!n !& the !ptima* ri(ky p!rt&!*i! that (h!u*d be in'e(tedin (t!6k i( .
. 0,
. 40,
. ;0,
5. 100,
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3$. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . St!6k ha(an e8pe6ted return !& 1>, and a (tandard de'iati!n !& return !& 20,. St!6k ha(an e8pe6ted return !& 14, and a (tandard de'iati!n !& return !& $,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !& and i( .$0. )he ri(k-&ree rate !&return i( 10,. )he e8pe6ted return !n the !ptima* ri(ky p!rt&!*i! i( .
. 14,
. 1$.;,
. 1;.4,
5. 1>, 3;. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . St!6k ha(
an e8pe6ted return !& 1>, and a (tandard de'iati!n !& return !& 20,. St!6k ha(an e8pe6ted return !& 14, and a (tandard de'iati!n !& return !& $,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !& and i( .$0. )he ri(k-&ree rate !&return i( 10,. )he (tandard de'iati!n !& return !n the !ptima* ri(ky p!rt&!*i! i(
.
. 0,
. $,
. ,
5. 20, 3. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . St!6k ha(
an e8pe6ted return !& 21, and a (tandard de'iati!n !& return !& 39,. St!6k ha(an e8pe6ted return !& 14, and a (tandard de'iati!n !& return !& 20,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !& and i( .4. )he ri(k-&ree rate !&return i( $,. )he pr!p!rti!n !& the !ptima* ri(ky p!rt&!*i! that (h!u*d be in'e(tedin (t!6k i( appr!8imate*y .
. 29,
. 44,
. $;,
5. 1,
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3>. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . St!6k ha(an e8pe6ted return !& 21, and a (tandard de'iati!n !& return !& 39,. St!6k ha(an e8pe6ted return !& 14, and a (tandard de'iati!n !& return !& 20,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !& and i( .4. )he ri(k-&ree rate !&return i( $,. )he e8pe6ted return !n the !ptima* ri(ky p!rt&!*i! i( appr!8imate*y
. Cint: Find +ei%ht( &ir(t.D
. 14,
. 1;,
. 1>,
5. 19,
39. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . St!6k ha(an e8pe6ted return !& 21, and a (tandard de'iati!n !& return !& 39,. St!6k ha(an e8pe6ted return !& 14, and a (tandard de'iati!n !& return !& 20,. )he6!rre*ati!n 6!e&&i6ient bet+een the return( !& and i( .4. )he ri(k-&ree rate !&return i( $,. )he (tandard de'iati!n !& the return( !n the !ptima* ri(ky p!rt&!*i! i(
.
. 2$.$,
. 22.3,
. 21.4,
5. 20., 40. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . )he
(tandard de'iati!n !& return !n (t!6k i( 24,7 +hi*e the (tandard de'iati!n !n(t!6k i( 14,. )he 6!rre*ati!n 6!e&&i6ient bet+een the return( !n and i( .3$.)he e8pe6ted return !n (t!6k i( 2$,7 +hi*e !n (t!6k it i( 11,. )he pr!p!rti!n!& the minimum-'arian6e p!rt&!*i! that +!u*d be in'e(ted in (t!6k i(
appr!8imate*y .
. 4$,
. ;,
. >$,
5. 92,
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41. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . )he(tandard de'iati!n !& return !n (t!6k i( 20,7 +hi*e the (tandard de'iati!n !n(t!6k i( 1$,. )he 6!rre*ati!n 6!e&&i6ient bet+een the return( !n and i( 0,.)he e8pe6ted return !n the minimum-'arian6e p!rt&!*i! i( appr!8imate*y
.
. 10,
. 13.;,
. 1$,
5. 19.41, 42. n in'e(t!r 6an de(i%n a ri(ky p!rt&!*i! ba(ed !n t+! (t!6k(7 and . )he
(tandard de'iati!n !& return !n (t!6k i( 20,7 +hi*e the (tandard de'iati!n !n(t!6k i( 1$,. )he 6!rre*ati!n 6!e&&i6ient bet+een the return( !n and i( 0,.)he (tandard de'iati!n !& return !n the minimum-'arian6e p!rt&!*i! i(
.
. 0,
. ;,
. 12,
5. 1, 43. mea(ure !& the ri(kine(( !& an a((et he*d in i(!*ati!n i( .
. beta
. (tandard de'iati!n
. 6!'arian6e
5. a*pha
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44. Semit!!* !rp. ha( an e8pe6ted e86e(( return !& ;, &!r ne8t year. !+e'er7 &!re'ery une8pe6ted 1, 6han%e in the market7 Semit!!*H( return re(p!nd( by a &a6t!r!& 1.2. Supp!(e it turn( !ut that the e6!n!my and the (t!6k market d! better thane8pe6ted by 1.$, and Semit!!*H( pr!du6t( e8perien6e m!re rapid %r!+th thananti6ipated7 pu(hin% up the (t!6k pri6e by an!ther 1,. a(ed !n thi( in&!rmati!n7
+hat +a( Semit!!*H( a6tua* e86e(( return
. ,
. >.$,
. >.>,
5. 9.2$,
4$.)he part !& a (t!6kH( return that i( (y(temati6 i( a &un6ti!n !& +hi6h !& the&!**!+in% 'ariab*e(
I. =!*ati*ity in e86e(( return( !& the (t!6k marketII. )he (en(iti'ity !& the (t!6kH( return( t! 6han%e( in the (t!6k marketIII. )he 'arian6e in the (t!6kH( return( that i( unre*ated t! the !'era** (t!6k market
. I !n*y
. I and II !n*y
. II and III !n*y
5. I7 II7 and III 4;. St!6k ha( a beta !& 1.27 and (t!6k ha( a beta !& 1. )he return( !& (t!6k are
(en(iti'e t! 6han%e( in the market than are the return( !& (t!6k .
. 20, m!re
. (*i%ht*y m!re
. 20, *e((
5. (*i%ht*y *e((
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4.Whi6h ri(k 6an be partia**y !r &u**y di'er(i&ied a+ay a( additi!na* (e6uritie( areadded t! a p!rt&!*i!
I. )!ta* ri(k II. Sy(temati6 ri(k
III. Firm-(pe6i&i6 ri(k
. I !n*y
. I and II !n*y
. I7 II7 and III
5. I and III
4>. 66!rdin% t! )!binH( (eparati!n pr!perty7 p!rt&!*i! 6h!i6e 6an be (eparated int!t+! independent ta(k( 6!n(i(tin% !& and .
. identi&yin% a** in'e(t!r imp!(ed 6!n(traint( identi&yin% the (et !& (e6uritie( that6!n&!rm t! the in'e(t!rH( 6!n(traint( and !&&er the be(t ri(k-return trade-!&&(
. identi&yin% the in'e(t!rH( de%ree !& ri(k a'er(i!n 6h!!(in% (e6uritie( &r!mindu(try %r!up( that are 6!n(i(tent +ith the in'e(t!rH( ri(k pr!&i*e
. identi&yin% the !ptima* ri(ky p!rt&!*i! 6!n(tru6tin% a 6!mp*ete p!rt&!*i! &r!m)-bi**( and the !ptima* ri(ky p!rt&!*i! ba(ed !n the in'e(t!rH( de%ree !& ri(ka'er(i!n
5. 6h!!(in% +hi6h ri(ky a((et( an in'e(t!r pre&er( a66!rdin% t! the in'e(t!rH( ri(k-a'er(i!n *e'e* minimizin% the < by *endin% at the ri(k-&ree rate
49. !u are 6!n(tru6tin% a (6atter p*!t !& e86e(( return( &!r (t!6k 'er(u( the market
inde8. I& the 6!rre*ati!n 6!e&&i6ient bet+een (t!6k and the inde8 i( -17 y!u +i**&ind that the p!int( !& the (6atter dia%ram and the *ine !& be(t &it ha(a .
. a** &a** !n the *ine !& be(t &it p!(iti'e (*!pe
. a** &a** !n the *ine !& be(t &it ne%ati'e (*!pe
. are +ide*y (6attered ar!und the *ine p!(iti'e (*!pe
5. are +ide*y (6attered ar!und the *ine ne%ati'e (*!pe
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$0.)he term excess return re&er( t! .
. return( earned i**e%a**y by mean( !& in(ider tradin%
. the di&&eren6e bet+een the rate !& return earned and the ri(k-&ree rate
. the di&&eren6e bet+een the rate !& return earned !n a parti6u*ar (e6urity and therate !& return earned !n !ther (e6uritie( !& e?ui'a*ent ri(k
5. the p!rti!n !& the return !n a (e6urity that repre(ent( ta8 *iabi*ity and there&!re6ann!t be rein'e(ted
$1. !u are re6a*6u*atin% the ri(k !& (t!6k in re*ati!n t! the market inde87 and
y!u &ind that the rati! !& the (y(temati6 'arian6e t! the t!ta* 'arian6e ha( ri(en.!u mu(t a*(! &ind that the .
. 6!'arian6e bet+een and the market ha( &a**en
. 6!rre*ati!n 6!e&&i6ient bet+een and the market ha( &a**en
. 6!rre*ati!n 6!e&&i6ient bet+een and the market ha( ri(en
5. un(y(temati6 ri(k !& ha( ri(en $2. (t!6k ha( a 6!rre*ati!n +ith the market !& .4$. )he (tandard de'iati!n !& the
market i( 21,7 and the (tandard de'iati!n !& the (t!6k i( 3$,. What i( the (t!6kH( beta
. 1
. .$
. .;0
5. .$$ $3.)he 'a*ue( !& beta 6!e&&i6ient( !& (e6uritie( are .
. a*+ay( p!(iti'e
. a*+ay( ne%ati'e
. a*+ay( bet+een p!(iti'e 1 and ne%ati'e 1
5. u(ua**y p!(iti'e but are n!t re(tri6ted in any parti6u*ar +ay
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$4. (e6urityH( beta 6!e&&i6ient +i** be ne%ati'e i& .
. it( return( are ne%ati'e*y 6!rre*ated +ith market-inde8 return(
. it( return( are p!(iti'e*y 6!rre*ated +ith market-inde8 return(
. it( (t!6k pri6e ha( hi(t!ri6a**y been 'ery (tab*e
5. market demand &!r the &irmH( (hare( i( 'ery *!+ $$. )he market 'a*ue +ei%hted-a'era%e beta !& &irm( in6*uded in the market inde8 +i**
a*+ay( be .
. 0
. bet+een 0 and 1
. 1
5. n!ne !& the(e !pti!n( C)here i( n! parti6u*ar ru*e 6!n6ernin% the a'era%e beta!& &irm( in6*uded in the market inde8.D
$;.5i'er(i&i6ati!n 6an redu6e !r e*iminate ri(k.
. a**
. (y(temati6
. n!n(y(temati6
5. !n*y an in(i%ni&i6ant $. )! 6!n(tru6t a ri(k*e(( p!rt&!*i! u(in% t+! ri(ky (t!6k(7 !ne +!u*d need t! &ind
t+! (t!6k( +ith a 6!rre*ati!n 6!e&&i6ient !& .
. 1
. .$
. 0
5. -1
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$>.S!me di'er(i&i6ati!n bene&it( 6an be a6hie'ed by 6!mbinin% (e6uritie( in a p!rt&!*i! a( *!n% a( the 6!rre*ati!n bet+een the (e6uritie( i( .
. 1
. *e(( than 1
. bet+een 0 and 1
5. *e(( than !r e?ua* t! 0 $9. I& an in'e(t!r d!e( n!t di'er(i&y hi( p!rt&!*i! and in(tead put( a** !& hi( m!ney in
!ne (t!6k7 the appr!priate mea(ure !& (e6urity ri(k &!r that in'e(t!r i( the .
. (t!6kH( (tandard de'iati!n
. 'arian6e !& the market
. (t!6kH( beta
5. 6!'arian6e +ith the market inde8 ;0.Whi6h !& the &!**!+in% pr!'ide( the be(t e8amp*e !& a (y(temati6-ri(k e'ent
. (trike by uni!n +!rker( hurt( a &irmH( ?uarter*y earnin%(.
. @ad !+ di(ea(e in @!ntana hurt( *!6a* ran6her( and buyer( !& bee&.
. )he Federa* e(er'e in6rea(e( intere(t rate( $0 ba(i( p!int(.
5. (eni!r e8e6uti'e at a &irm embezz*e( #10 mi**i!n and e(6ape( t! S!uthmeri6a.
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;1. Whi6h !& the &!**!+in% (tatement( i( CareD true re%ardin% time di'er(i&i6ati!n
I. )he (tandard de'iati!n !& the a'era%e annua* rate !& return !'er (e'era* year(+i** be (ma**er than the 1-year (tandard de'iati!n.II. F!r a *!n%er time h!riz!n7 un6ertainty 6!mp!und( !'er a %reater number !&
year(.III. )ime di'er(i&i6ati!n d!e( n!t redu6e ri(k.
. I !n*y
. II !n*y
. II and III !n*y
5. I7 II7 and III
;2. !u &ind that the annua* Sharpe rati! &!r (t!6k return( i( e?ua* t! 1.>. F!r a 3-
year h!*din% peri!d7 the Sharpe rati! +!u*d e?ua* .
. 1.>
. 2.4>
. 3.12
5. $.49 ;3.
)he beta !& thi( (t!6k i( .
. .12
. .3$
. 1.32
5. 4.0$
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;4.
)hi( (t!6k ha( %reater (y(temati6 ri(k than a (t!6k +ith a beta !& .
. .$0
. 1.$
. 2
5. 3 ;$.
)he 6hara6teri(ti6 *ine &!r thi( (t!6k i( R(t!6k L B Rmarket.
. .3$ .12
. 4.0$ 1.32
. 1$.44 .9
5. .2; 1.3;
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;;.
per6ent !& the 'arian6e i( e8p*ained by thi( re%re((i!n.
. 12
. 3$
. 4.0$
5. >0 ;.
)he (t!6k i( ri(kier than the typi6a* (t!6k.
. 32,
. 1$.44,
. 12,
5. 3>,
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;>.5e6rea(in% the number !& (t!6k( in a p!rt&!*i! &r!m $0 t! 10 +!u*d *ike*y .
. in6rea(e the (y(temati6 ri(k !& the p!rt&!*i!
. in6rea(e the un(y(temati6 ri(k !& the p!rt&!*i!
. in6rea(e the return !& the p!rt&!*i!
5. de6rea(e the 'ariati!n in return( the in'e(t!r &a6e( in any !ne year ;9. I& y!u +ant t! kn!+ the p!rt&!*i! (tandard de'iati!n &!r a three-(t!6k p!rt&!*i!7
y!u +i** ha'e t! .
. 6a*6u*ate t+! 6!'arian6e( and !ne tri'arian6e
. 6a*6u*ate !n*y t+! 6!'arian6e(
. 6a*6u*ate three 6!'arian6e(
5. a'era%e the 'arian6e( !& the indi'idua* (t!6k( 0. Whi6h !& the &!**!+in% 6!rre*ati!n 6!e&&i6ient( +i** pr!du6e the *ea(t
di'er(i&i6ati!n bene&it
. -.;
. -.3
. 0
5. .> 1. Whi6h !& the &!**!+in% 6!rre*ati!n 6!e&&i6ient( +i** pr!du6e the m!(t
di'er(i&i6ati!n bene&it(
. -.;
. -.9
. 0
5. .4
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2. What i( the m!(t *ike*y 6!rre*ati!n 6!e&&i6ient bet+een a (t!6k-inde8 mutua* &undand the SG $00
. -1
. 0
. 1
5. .$ 3. In'e(tin% in t+! a((et( +ith a 6!rre*ati!n 6!e&&i6ient !& -.$ +i** redu6e +hat kind
!& ri(k
. @arket ri(k
. N!ndi'er(i&iab*e ri(k
. Sy(temati6 ri(k
5. Jni?ue ri(k 4. In'e(tin% in t+! a((et( +ith a 6!rre*ati!n 6!e&&i6ient !& 1 +i** redu6e +hi6h kind
!& ri(k
. @arket ri(k
. Jni?ue ri(k
. Jn(y(temati6 ri(k
5. N!ne !& the(e !pti!n( CWith a 6!rre*ati!n !& 17 n! ri(k +i** be redu6ed.D $. p!rt&!*i! !& (t!6k( &*u6tuate( +hen the )rea(ury yie*d( 6han%e. Sin6e thi( ri(k
6ann!t be e*iminated thr!u%h di'er(i&i6ati!n7 it i( 6a**ed .
. &irm-(pe6i&i6 ri(k
. (y(temati6 ri(k
. uni?ue ri(k
5. n!ne !& the !pti!n(
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;.( y!u *en%then the time h!riz!n !& y!ur in'e(tment peri!d and de6ide t! in'e(t&!r mu*tip*e year(7 y!u +i** &ind that:
I. )he a'era%e ri(k per year may be (ma**er !'er *!n%er in'e(tment h!riz!n(.II. )he !'era** ri(k !& y!ur in'e(tment +i** 6!mp!und !'er time.
III. !ur !'era** ri(k !n the in'e(tment +i** &a**.
. I !n*y
. I and II !n*y
. III !n*y
5. I7 II7 and III
. !u are 6!n(iderin% addin% a ne+ (e6urity t! y!ur p!rt&!*i!. )! de6ide +hethery!u (h!u*d add the (e6urity7 y!u need t! kn!+ the (e6urityH(:
I. 8pe6ted returnII. Standard de'iati!nIII. !rre*ati!n +ith y!ur p!rt&!*i!
. I !n*y
. I and II !n*y
. I and III !n*y
5. I7 II7 and III >.Whi6h !& the &!**!+in% i( a 6!rre6t e8pre((i!n 6!n6ernin% the &!rmu*a &!r the
(tandard de'iati!n !& return( !& a t+!-a((et p!rt&!*i! +here the 6!rre*ati!n6!e&&i6ient i( p!(iti'e
. O2
rp P CW 12
O1
2
B W 22
O2
2
D
. O2rp L CW 12O1
2 B W 22O2
2D
. O2rp L CW 12O1
2 - W 22O2
2D
5. O2rp CW 12O1
2 B W 22O2
2D
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9. What i( the (tandard de'iati!n !& a p!rt&!*i! !& t+! (t!6k( %i'en the &!**!+in%data: St!6k ha( a (tandard de'iati!n !& 1>,. St!6k ha( a (tandard de'iati!n !& 14,. )he p!rt&!*i! 6!ntain( 40, !& (t!6k 7 and the 6!rre*ati!n 6!e&&i6ient
bet+een the t+! (t!6k( i( -.23.
. 9.,
. 12.2,
. 14,
5. 1$.;, >0. What i( the (tandard de'iati!n !& a p!rt&!*i! !& t+! (t!6k( %i'en the &!**!+in%
data: St!6k ha( a (tandard de'iati!n !& 30,. St!6k ha( a (tandard de'iati!n !&
1>,. )he p!rt&!*i! 6!ntain( ;0, !& (t!6k 7 and the 6!rre*ati!n 6!e&&i6ient bet+een the t+! (t!6k( i( -1.
. 0,
. 10.>,
. 1>,
5. 24, >1. )he e8pe6ted return !& a p!rt&!*i! i( >.9,7 and the ri(k-&ree rate i( 3.$,. I& the
p!rt&!*i! (tandard de'iati!n i( 12,7 +hat i( the re+ard-t!-'ariabi*ity rati! !& the p!rt&!*i!
. 0
. .4$
. .4
5. 1.3$
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>2. pr!e6t ha( a ;0, 6han6e !& d!ub*in% y!ur in'e(tment in 1 year and a 40,6han6e !& *!(in% ha*& y!ur m!ney. What i( the (tandard de'iati!n !& thi(in'e(tment
. 2$,
. $0,
. ;2,
5. 3, >3. pr!e6t ha( a $0, 6han6e !& d!ub*in% y!ur in'e(tment in 1 year and a $0,
6han6e !& *!(in% ha*& y!ur m!ney. What i( the e8pe6ted return !n thi( in'e(tment pr!e6t
. 0,
. 2$,
. $0,
5. $, >4. )he &i%ure( be*!+ (h!+ p*!t( !& m!nth*y e86e(( return( &!r t+! (t!6k( p*!tted
a%ain(t e86e(( return( &!r a market inde8.
Whi6h (t!6k i( *ike*y t! &urther redu6e ri(k &!r an in'e(t!r 6urrent*y h!*din% her p!rt&!*i! in a +e**-di'er(i&ied p!rt&!*i! !& 6!mm!n (t!6k
. St!6k
. St!6k
. )here i( n! di&&eren6e bet+een !r .
5. )he an(+er 6ann!t be determined &r!m the in&!rmati!n %i'en.
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>$. )he &i%ure( be*!+ (h!+ p*!t( !& m!nth*y e86e(( return( &!r t+! (t!6k( p*!tteda%ain(t e86e(( return( &!r a market inde8.
Whi6h (t!6k i( ri(kier t! a n!ndi'er(i&ied in'e(t!r +h! put( a** hi( m!ney in !n*y!ne !& the(e (t!6k(
. St!6k i( ri(kier.
. St!6k i( ri(kier.
. !th (t!6k( are e?ua**y ri(ky.
5. )he an(+er 6ann!t be determined &r!m the in&!rmati!n %i'en.