Which of the following statements about the ‘Portfolio Theory’ section of the lecture material are TRUE:

1. The standard deviation of a portfolio of shares in two different companies will always be less than the weighted average of the standard deviations of the individual shares.
2. A share portfolio that follows a diversified market index is expected to offer a reasonably efficient combination of expected return and risk.

You plan to invest 35% of your portfolio in Company A with the remainder to be invested in Company B. The standard deviation of Company A’s stock returns is 16%. The standard deviation of Company B’s stock returns is 22%. The correlation between the stock returns of Company A and Company B is 0.51. What is the standard deviation of your portfolio’s returns (as a percentage to two decimal places)?

Your answer should be expressed as a percentage to 2 decimal places but do not include a percent sign. For example, if your answer is 10.237%, you should enter 10.24. If your answer is 10.233%, you should enter 10.23. Please do not enter your answer as a decimal, such as 0.1024.

A company’s shares are expected to pay a dividend of $9.06 per share in one year. The dividend is expected to grow at a real rate of 1.1% per year indefinitely. The required real rate of return on the company’s shares is 6% per year. Calculate the stock price (to the nearest cent).

Your answer should be to the nearest cent and you should not include a dollar sign or commas. If your answer is $12.187, you should enter your answer as 12.19. If your answer is $12.183, you should enter your answer as 12.18.

Which of the following statements about the ‘Property Insurance’, ‘Motor Vehicle Insurance’, ‘Health Insurance’ and ‘Travel Insurance’ sections of the lecture material are TRUE:

1. According to the course material, it is generally acceptable for young drivers just to take out Green Slip insurance. Comprehensive and third-party property insurance can be expensive, and aren’t really necessary if you are a safe driver and set aside some savings to buy a new car in the event of an accident.
2. In most cases, the main reason to take out travel insurance when travelling overseas is to cover the cost of lost equipment and clothes in the event that your baggage goes missing or is stolen.

Which of the following statements about the ‘What is Risk?’, ‘Risk and Human Bias’ and ‘What is Risk Management?’ sections of the lecture material are TRUE:

1. An individual can either lose $100 for certain (with 100% probability) or take a gamble. The gamble involves a 10% probability of losing $1,000 and a 90% probability of losing $0. A typical person exhibiting human bias would usually take the gamble, even though the rational risk-averse choice would be to take the certain loss of $100.
2. An individual is considering how to manage the risk of damage to their motor vehicle. Four methods to manage that risk that are consistent (in any order) with the MEAT acronym would be as follows: (i) sell the motor vehicle and use public transport, (ii) always drive defensively and obey the speed limit, (iii) take out comprehensive motor vehicle insurance and (iv) set aside enough funds in a savings account for major repairs or to buy a new vehicle if necessary.

Which of the following concepts is MOST consistent with a situation in which the individual applying for insurance has more complete information about their situation and risks than the insurance company providing the insurance:

Which of the following statements about the ‘What is Risk?’ section of the lecture material based on the diagram below are TRUE:

1. A risk-averse individual would always prefer A to B because they both offer the same expected reward while B has a higher level of risk than A.
2. A risk-averse individual would always prefer A to C because A has a significantly lower level of risk than C.

Simon lives in the country of Snowland. His taxable income is $49,000 per year. Snowland’s income tax schedule is provided below. Snowland also has a 2% Medicare Levy. What is her income tax payable including Medicare Levy (to the nearest dollar)? Please do not include dollar signs or commas in your answer.

Stephen lives in the country of Snowland. He has:

• a full-time job earning a gross salary of $35,000 per year;
• $39,000 in a 1 year term deposit that will earn interest at the rate of 4% per year; and
• study expenses of $3,000 per year that are an allowable deduction.

What is his taxable income (to the nearest dollar)? Please do not include dollar signs or commas in your answer.

Julie lives in the country of Snowland. She has:

• a full-time job earning a gross salary of $50,000 per year;
• $27,000 in a 1 year term deposit that will earn interest at the rate of 6% per year; and
• study expenses of $3,000 per year that are an allowable deduction.

What is her assessable income (to the nearest dollar)? Please do not include dollar signs or commas in your answer.