Exhibit 7.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { c c } \text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \\ \hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 9 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 11 \% \\ \left( \sigma _ { \mathrm { A } } \right) = 4 \% & \left( \sigma _ { \mathrm { B } } \right) = 6 \% \\ W _ { \mathrm { A } } = 0.4 & W _ { \mathrm { B } } = 0.6 \\ \mathrm { COV } _ { A,B } = 0.0011 \end{array}\] -Refer to Exhibit 7.3. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ($\sigma$i), covariance (COVi,j), and asset weight (Wi) are as shown above?

A) 8.95% B) 9.30% C) 9.95% D) 10.20% E) 10.70% A) 8.95% B) 9.30% C) 9.95% D) 10.20% E) 10.70% D

Exhibit 7.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { c c } \text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \\ \hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 16 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 10 \% \\ \left( \sigma _ { \mathrm { A } } \right) = 9 \% & \left( \sigma _ { \mathrm { B } } \right) = 7 \% \\ W _ { \mathrm { A } } = 0.5 & W _ { \mathrm { B } } = 0.5 \\ \mathrm { COV } V _ { \mathrm { A,B } } = 0.0009 \end{array}\] -Refer to Exhibit 7.6. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ($\sigma$i), covariance (COVi,j), and asset weight (Wi) are as shown above?

A) 10.6 % B) 10.2% C) 13.0% D) 11.9% E) 14.0% A) 10.6 % B) 10.2% C) 13.0% D) 11.9% E) 14.0%

Calculate the expected return for a three asset portfolio with the following \[\begin{array} { c c c c } \text { Asset } & \text { Exp. Ret. } & \text { Std. Dev } & \text { Weight } \\ \hline \text { A } & 0.0675 & 0.12 & 0.25 \\ \text { B } & 0.1235 & 0.1675 & 0.35 \\ \text { C } & 0.1425 & 0.1835 & 0.40 \end{array}\]

A) 11.71% B) 11.12% C) 15.70% D) 14.25% E) 6.75%. A) 11.71% B) 11.12% C) 15.70% D) 14.25% E) 6.75%.

Exhibit 7.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { c c } \text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \\ \hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 7 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 9 \% \\ \left( \sigma _ { \mathrm { A } } \right) = 6 \% & \left( \sigma _ { \mathrm { B } } \right) = 5 \% \\ \mathrm {~W} _ { \mathrm { A } } = 0.6 & \mathrm {~W} _ { \mathrm { B } } = 0.4 \\ \mathrm { CO } V _ { \mathrm { A,B } } = 0.0014 \end{array}\] -Refer to Exhibit 7.7. What is the standard deviation of this portfolio?

A) 4.87% B) 3.62% C) 4.13% D) 5.76% E) 6.02% A) 4.87% B) 3.62% C) 4.13% D) 5.76% E) 6.02%

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { c c } \text { Asset 1 } & \text { Asset 2 } \\ \hline E \left( R _ { 1 } \right) = .12 & E \left( R _ { 2 } \right) = .16 \\ E \left( \sigma _ { 1 } \right) = .04 & E \left( \sigma _ { 2 } \right) = .06 \end{array}\] -Refer to Exhibit 7.12. Calculate the expected returns and expected standard deviations of a two stock portfolio when r1,2 = .80 and w1 = .60.

A) .144 and .0002 B) .144 and .0018 C) .136 and .0045 D) .136 and .0455 E) .136 and .4554 A) .144 and .0002 B) .144 and .0018 C) .136 and .0045 D) .136 and .0455 E) .136 and .4554

What is the expected return of the three stock portfolio described below? \[\begin{array} { l c c } \text { Common Stock } & \text { Market Value } & \text { Expected Return } \\ \hline \text { Lupko Inc. } & 50,000 & 13 \% \\ \text { Mackey Co. } & 25,000 & 9 \% \\ \text { Nippon Inc. } & 75,000 & 14 \% \end{array}\]

A) 12.04% B) 12.83% C) 13.07% D) 15.89% E) 17.91% A) 12.04% B) 12.83% C) 13.07% D) 15.89% E) 17.91%

Exhibit 7.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { c c } \text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \\ \hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 7 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 9 \% \\ \left( \sigma _ { \mathrm { A } } \right) = 6 \% & \left( \sigma _ { \mathrm { B } } \right) = 5 \% \\ \mathrm {~W} _ { \mathrm { A } } = 0.6 & \mathrm {~W} _ { \mathrm { B } } = 0.4 \\ \mathrm { CO } V _ { \mathrm { A,B } } = 0.0014 \end{array}\] -Refer to Exhibit 7.7. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ($\sigma$i), covariance (COVi,j), and asset weight (Wi) are as shown above?

A) 5.8% B) 6.1% C) 6.9% D) 7.8% E) 8.9% A) 5.8% B) 6.1% C) 6.9% D) 7.8% E) 8.9%

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) \[\begin{array} { c c } \text { Asset 1 } & \text { Asset 2 } \\ \hline E \left( R _ { 1 } \right) = .12 & E \left( R _ { 2 } \right) = .16 \\ E \left( \sigma _ { 1 } \right) = .04 & E \left( \sigma _ { 2 } \right) = .06 \end{array}\] -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.

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

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.

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

Exam 7: An Introduction to Portfolio Management

Exhibit 7.14 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed. Stock Expected Return Standard Deviation A 20\% 25\% B 15\% 19\% -Refer to Exhibit 7.14. What is the standard deviation of the stock A and B portfolio?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

D

Which of the following statements about the correlation coefficient is false?

Free

(Multiple Choice)

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Question 2

Correct Answer:

Verified

D

Exhibit 7.3 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =9\% =11\% =4\% =6\% =0.4 =0.6 =0.0011 -Refer to Exhibit 7.3. What is the expected return of a portfolio of two risky assets if the expected return E(R_i), standard deviation ( $\sigma$ _i), covariance (COV_i,j), and asset weight (W_i) are as shown above?

Free

(Multiple Choice)

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Question 3

Correct Answer:

Verified

D

Exhibit 7.6 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =16\% =10\% =9\% =7\% =0.5 =0.5 =0.0009 -Refer to Exhibit 7.6. What is the expected return of a portfolio of two risky assets if the expected return E(R_i), standard deviation ( $\sigma$ _i), covariance (COV_i,j), and asset weight (W_i) are as shown above?

(Multiple Choice)

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Question 4

Calculate the expected return for a three asset portfolio with the following Asset Exp. Ret. Std. Dev Weight A 0.0675 0.12 0.25 B 0.1235 0.1675 0.35 C 0.1425 0.1835 0.40

(Multiple Choice)

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Question 5

Exhibit 7.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =7\% =9\% =6\% =5\% =0.6 =0.4 =0.0014 -Refer to Exhibit 7.7. What is the standard deviation of this portfolio?

(Multiple Choice)

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Question 6

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?

(Multiple Choice)

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Question 7

Between 1986 and 1996, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.09, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators?

(Multiple Choice)

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Question 8

A good portfolio is a collection of individually good assets.

(True/False)

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Question 9

Exhibit 7.13 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A financial analyst covering Magnum Oil has determined the following four possible returns given four different states of the economy over the next period. Probability Return 0.10 -.20 0.25 -.05 0.40 0.15 0.25 0.30 -Refer to Exhibit 7.13. Calculate the standard deviation for Magnum Oil.

(Multiple Choice)

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Question 10

The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.

(Multiple Choice)

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Question 11

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Refer to Exhibit 7.12. Calculate the expected returns and expected standard deviations of a two stock portfolio when r_1,2 = .80 and w₁ = .60.

(Multiple Choice)

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Question 12

In a three asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.

(True/False)

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Question 13

Combining assets that are not perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.

(True/False)

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Question 14

What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return Lupko Inc. 50,000 13\% Mackey Co. 25,000 9\% Nippon Inc. 75,000 14\%

(Multiple Choice)

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Question 15

Exhibit 7.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =7\% =9\% =6\% =5\% =0.6 =0.4 =0.0014 -Refer to Exhibit 7.7. What is the expected return of a portfolio of two risky assets if the expected return E(R_i), standard deviation ( $\sigma$ _i), covariance (COV_i,j), and asset weight (W_i) are as shown above?

(Multiple Choice)

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Question 16

Semivariance, when applied to portfolio theory, is concerned with

(Multiple Choice)

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Question 17

You are given a two asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be and the expected portfolio standard deviation would be .

(Multiple Choice)

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Question 18

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -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.

(Multiple Choice)

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Question 19

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: W₁ = [E( $\sigma$ ₁)² - r_1.2 E( $\sigma$ ₁) E( $\sigma$ ₂)] - [E( $\sigma$ ₁)² + E( $\sigma$ ₂)² - 2 r_1.2 E( $\sigma$ ₁) E( $\sigma$ ₂)] -Refer to Exhibit 7B.1. Show the minimum portfolio variance for a portfolio of two risky assets when r_1.2 = -1.

(Multiple Choice)

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Question 20

Which of the following statements about the correlation coefficient is false?

Calculate the expected return for a three asset portfolio with the following Asset Exp. Ret. Std. Dev Weight A 0.0675 0.12 0.25 B 0.1235 0.1675 0.35 C 0.1425 0.1835 0.40

Exhibit 7.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =7\% =9\% =6\% =5\% =0.6 =0.4 =0.0014 -Refer to Exhibit 7.7. What is the standard deviation of this portfolio?

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?

Between 1986 and 1996, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.09, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators?

A good portfolio is a collection of individually good assets.

The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Refer to Exhibit 7.12. Calculate the expected returns and expected standard deviations of a two stock portfolio when r_1,2 = .80 and w₁ = .60.

In a three asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.

Combining assets that are not perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.

What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return Lupko Inc. 50,000 13\% Mackey Co. 25,000 9\% Nippon Inc. 75,000 14\%

Semivariance, when applied to portfolio theory, is concerned with

You are given a two asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be and the expected portfolio standard deviation would be .

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -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.

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

Which of the following statements about the correlation coefficient is false?

Calculate the expected return for a three asset portfolio with the following Asset Exp. Ret. Std. Dev Weight A 0.0675 0.12 0.25 B 0.1235 0.1675 0.35 C 0.1425 0.1835 0.40

Exhibit 7.7 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =7\% =9\% =6\% =5\% =0.6 =0.4 =0.0014 -Refer to Exhibit 7.7. What is the standard deviation of this portfolio?

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?

Between 1986 and 1996, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.09, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators?

A good portfolio is a collection of individually good assets.

The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Refer to Exhibit 7.12. Calculate the expected returns and expected standard deviations of a two stock portfolio when r1,2 = .80 and w1 = .60.

In a three asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.

Combining assets that are not perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.

What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return Lupko Inc. 50,000 13\% Mackey Co. 25,000 9\% Nippon Inc. 75,000 14\%

Semivariance, when applied to portfolio theory, is concerned with

You are given a two asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be ____ and the expected portfolio standard deviation would be ____.

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -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.

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) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Refer to Exhibit 7.12. Calculate the expected returns and expected standard deviations of a two stock portfolio when r_1,2 = .80 and w₁ = .60.

You are given a two asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be and the expected portfolio standard deviation would be .

Exhibit 7.12 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -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.