Question 1

Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

Accepted Answer

A) True 
 B)False

Question 2

Markowitz believes that any asset or portfolio of assets can be described by ____ parameter(s).

Accepted Answer

A) One 
B) Two 
C) Three 
D) Four 
E) Five 
A) One 
B) Two 
C) Three 
D) Four 
E) Five

Question 3

All of the following are assumptions of the Markowitz model except

Accepted Answer

A) Risk is measured based on the variability of returns. 
B) Investors maximize one-period expected utility. 
C) Investors' utility curves demonstrate properties of diminishing marginal utility of wealth. 
D) Investors base decisions solely on expected return and time. 
E) All of the above 
A) Risk is measured based on the variability of returns. 
B) Investors maximize one-period expected utility. 
C) Investors' utility curves demonstrate properties of diminishing marginal utility of wealth. 
D) Investors base decisions solely on expected return and time. 
E) All of the above

Question 4

Exhibit 7.12
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 7.12. Calculate the expected return and expected standard deviation of a two stock portfolio when r1,2 = -.60 and w1 = .75.

Accepted Answer

A) .13 and .0024 
B) .13 and .0455 
C) .12 and .0585 
D) .12 and .5585 
E) .13 and .6758 
A) .13 and .0024 
B) .13 and .0455 
C) .12 and .0585 
D) .12 and .5585 
E) .13 and .6758

Question 5

What is the expected return of the three stock portfolio described below?

Accepted Answer

A) 21.33% 
B) 12.50% 
C) 32.00% 
D) 15.75% 
E) 16.80% 
A) 21.33% 
B) 12.50% 
C) 32.00% 
D) 15.75% 
E) 16.80%

Question 6

As the correlation coefficient between two assets decreases, the shape of the efficient frontier

Accepted Answer

A) approaches a horizontal straight line. 
B) bends out. 
C) bends in. 
D) approaches a vertical straight line. 
E) none of the above. 
A) approaches a horizontal straight line. 
B) bends out. 
C) bends in. 
D) approaches a vertical straight line. 
E) none of the above.

Question 7

Between 1990 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.18 and 0.16, respectively, and the covariance of these index returns was 0.003. What was the correlation coefficient between the two market indicators?

Accepted Answer

A) 9.6 
B) 0.0187 
C) 0.1042 
D) 0.0166 
E) 0.343 
A) 9.6 
B) 0.0187 
C) 0.1042 
D) 0.0166 
E) 0.343

Question 8

All of the following are common risk measurements except

Accepted Answer

A) Standard deviation 
B) Variance 
C) Semivariance 
D) Covariance 
E) Range of returns 
A) Standard deviation 
B) Variance 
C) Semivariance 
D) Covariance 
E) Range of returns

Question 9

The slope of the efficient frontier is calculated as follows

Accepted Answer

A) .E(Rportfolio)/E($\sigma$portfolio) 
B) .E($\sigma$portfolio)/ E(Rportfolio) 
C) .$\Delta$ E(Rportfolio)/$\Delta$ E($\sigma$portfolio) 
D) .$\Delta$ E($\sigma$portfolio)/$\Delta$ E(Rportfolio) 
E) None of the above 
A) .E(Rportfolio)/E($\sigma$portfolio) 
B) .E($\sigma$portfolio)/ E(Rportfolio) 
C) .$\Delta$ E(Rportfolio)/$\Delta$ E($\sigma$portfolio) 
D) .$\Delta$ E($\sigma$portfolio)/$\Delta$ E(Rportfolio) 
E) None of the above

Question 10

Exhibit 7B.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The general equation for the weight of the first security to achieve the minimum variance (in a two stock portfolio) is given by:
WS1U1B11S1U1B0 = [E($\sigma$S1U1B11S1U1B0)S1U1P12S1S1P0 - rS1U1B11.2S1U1B0 E($\sigma$S1U1B11S1U1B0) E($\sigma$S1U1B12S1U1B0)] /[E($\sigma$S1U1B11S1U1B0)S1U1P12S1S1P0 + E($\sigma$S1U1B12S1U1B0)S1U1P12S1S1P0 - 2 rS1U1B11.2S1U1B0 E($\sigma$S1U1B11S1U1B0) E($\sigma$S1U1B12S1U1B0)]
-Refer to Exhibit 7B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r1.2 = -1.

Accepted Answer

A) E($\sigma$1) /[E($\sigma$1) + E($\sigma$2)] 
B) E($\sigma$1) /[E($\sigma$1) -E($\sigma$2)] 
C) E($\sigma$2) /[E($\sigma$1) + E($\sigma$2)] 
D) E($\sigma$2) /[E($\sigma$1) -E($\sigma$2)] 
E) None of the above 
A) E($\sigma$1) /[E($\sigma$1) + E($\sigma$2)] 
B) E($\sigma$1) /[E($\sigma$1) -E($\sigma$2)] 
C) E($\sigma$2) /[E($\sigma$1) + E($\sigma$2)] 
D) E($\sigma$2) /[E($\sigma$1) -E($\sigma$2)] 
E) None of the above

Question 11

Exhibit 7A.1
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
The general equation for the weight of the first security to achieve the minimum variance (in a two stock portfolio) is given by:
WS1U1B11S1U1B0 = [E($\sigma$S1U1B12S1U1B0)S1U1P12S1S1P0 - rS1U1B11.2S1U1B0 E($\sigma$S1U1B11S1U1B0)E($\sigma$S1U1B12S1U1B0)] /[E($\sigma$S1U1B11S1U1B0)S1U1P12S1S1P0 + E($\sigma$S1U1B12S1U1B0)S1U1P12S1S1P0 - 2 rS1U1B11.2S1U1B0E($\sigma$S1U1B11S1U1B0)E($\sigma$S1U1B12S1U1B0)]
-Refer to Exhibit 7A.1. Show the minimum portfolio variance for a two stock portfolio when r1.2 = 1.

Accepted Answer

A) E($\sigma$2)/ [E($\sigma$1) - E($\sigma$2)] 
B) E($\sigma$2)/[E($\sigma$1) + E($\sigma$2)] 
C) E($\sigma$1) /[E($\sigma$1) -E($\sigma$2)] 
D) E($\sigma$1) /[E($\sigma$1) + E($\sigma$2)] 
E) None of the above 
A) E($\sigma$2)/ [E($\sigma$1) - E($\sigma$2)] 
B) E($\sigma$2)/[E($\sigma$1) + E($\sigma$2)] 
C) E($\sigma$1) /[E($\sigma$1) -E($\sigma$2)] 
D) E($\sigma$1) /[E($\sigma$1) + E($\sigma$2)] 
E) None of the above

Question 12

Exhibit 7.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 7.8. What is the standard deviation of this portfolio?

Accepted Answer

A) 4.51% 
B) 5.94% 
C) 6.75% 
D) 7.09% 
E) 8.62% 
A) 4.51% 
B) 5.94% 
C) 6.75% 
D) 7.09% 
E) 8.62%

Question 13

Exhibit 7.6
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 7.6. What is the standard deviation of this portfolio?

Accepted Answer

A) 6.08% 
B) 5.89% 
C) 7.06% 
D) 6.54% 
E) 7.26% 
A) 6.08% 
B) 5.89% 
C) 7.06% 
D) 6.54% 
E) 7.26%

Question 14

A portfolio is considered to be efficient if:

Accepted Answer

A) No other portfolio offers higher expected returns with the same risk. 
B) No other portfolio offers lower risk with the same expected return. 
C) There is no portfolio with a higher return. 
D) Choices a and b 
E) All of the above 
A) No other portfolio offers higher expected returns with the same risk. 
B) No other portfolio offers lower risk with the same expected return. 
C) There is no portfolio with a higher return. 
D) Choices a and b 
E) All of the above

Question 15

Exhibit 7.16
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Based on the economic outlook for the industry a financial analyst covering Top Choice Corporation has determined the following three possible returns given three different states of the economy over the next period.
  
-Refer to Exhibit 7.16. What is the standard deviation for Top Choice Corporation?

Accepted Answer

A) 0.1% 
B) 6.3% 
C) 7.9% 
D) 9.4% 
E) 12.1% 
A) 0.1% 
B) 6.3% 
C) 7.9% 
D) 9.4% 
E) 12.1%

Question 16

Exhibit 7.9
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 7.9. What is the standard deviation of this portfolio?

Accepted Answer

A) 5.16% 
B) 5.89% 
C) 6.11% 
D) 6.57% 
E) 7.02% 
A) 5.16% 
B) 5.89% 
C) 6.11% 
D) 6.57% 
E) 7.02%

Question 17

Semivariance, when applied to portfolio theory, is concerned with

Accepted Answer

A) The square root of deviations from the mean. 
B) All deviations below the mean. 
C) All deviations above the mean. 
D) All deviations. 
E) The summation of the squared deviations from the mean. 
A) The square root of deviations from the mean. 
B) All deviations below the mean. 
C) All deviations above the mean. 
D) All deviations. 
E) The summation of the squared deviations from the mean.

Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

Markowitz believes that any asset or portfolio of assets can be described by ____ parameter(s).

All of the following are assumptions of the Markowitz model except

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.12. Calculate the expected return and expected standard deviation of a two stock portfolio when r_1,2 = -.60 and w₁ = .75.

What is the expected return of the three stock portfolio described below?

As the correlation coefficient between two assets decreases, the shape of the efficient frontier

Between 1990 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.18 and 0.16, respectively, and the covariance of these index returns was 0.003. What was the correlation coefficient between the two market indicators?

All of the following are common risk measurements except

The slope of the efficient frontier is calculated as follows

Exhibit 7.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.8. What is the standard deviation of this portfolio?

Exhibit 7.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.6. What is the standard deviation of this portfolio?

A portfolio is considered to be efficient if:

Exhibit 7.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.9. What is the standard deviation of this portfolio?

Semivariance, when applied to portfolio theory, is concerned with

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 7: An Introduction to Portfolio Management

Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

Markowitz believes that any asset or portfolio of assets can be described by ____ parameter(s).

All of the following are assumptions of the Markowitz model except

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.12. Calculate the expected return and expected standard deviation of a two stock portfolio when r1,2 = -.60 and w1 = .75.

What is the expected return of the three stock portfolio described below?

As the correlation coefficient between two assets decreases, the shape of the efficient frontier

Between 1990 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.18 and 0.16, respectively, and the covariance of these index returns was 0.003. What was the correlation coefficient between the two market indicators?

All of the following are common risk measurements except

The slope of the efficient frontier is calculated as follows

Exhibit 7.8 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.8. What is the standard deviation of this portfolio?

Exhibit 7.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.6. What is the standard deviation of this portfolio?

A portfolio is considered to be efficient if:

Exhibit 7.9 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.9. What is the standard deviation of this portfolio?

Semivariance, when applied to portfolio theory, is concerned with

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Organization and Functioning of Securities Markets

Security-Market Indexes

Efficient Capital Markets

An Introduction to Asset Pricing Models

Multifactor Models of Risk and Return

Analysis of Financial Statements

Introduction to Security Valuation

Macroanalysis and Microvaluation of the Stock Market

Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Equity Portfolio Management Strategies

Bond Fundamentals

The Analysis and Valuation of Bonds

Bond Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward and Futures Contracts

Option Contracts

Swap Contracts, Convertible Securities, and Other Embedded Derivatives

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 7.12. Calculate the expected return and expected standard deviation of a two stock portfolio when r_1,2 = -.60 and w₁ = .75.