Question 1

A portfolio of two securities that are perfectly positively correlated has

Accepted Answer

A) A standard deviation that is the weighted average of the individual securities standard deviations. 
B) An expected return that is the weighted average of the individual securities expected returns. 
C) No diversification benefit over holding either of the securities independently. 
D) Both b and c 
E) All of the above 
A) A standard deviation that is the weighted average of the individual securities standard deviations. 
B) An expected return that is the weighted average of the individual securities expected returns. 
C) No diversification benefit over holding either of the securities independently. 
D) Both b and c 
E) All of the above

Question 2

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 3

Exhibit 7.11
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { l } 
\begin{array} { c c } 
\text { Asset 1 } & \text { Asset 2 } \
\hline \mathrm { E } \left( \mathrm { R } _ { 1 } \right) = 0.28 & \mathrm { E } \left( \mathrm { R } _ { 2 } \right) = 0.12
\end{array} \
E \left( \sigma _ { 1 } \right) = 0.15 \quad E \left( \sigma _ { 2 } \right) = 0.11 \
W _ { 1 } = 0.42 \quad W _ { 2 } = 0.58 \
\mathrm { r } _ { 1,2 } = 0.7 \
\end{array}$$
-Refer to Exhibit 7.11. Calculate the expected standard deviation of the two stock portfolio.

Accepted Answer

A) 0.1367 
B) 0.1872 
C) 0.1169 
D) 0.20 
E) 0.3950 
A) 0.1367 
B) 0.1872 
C) 0.1169 
D) 0.20 
E) 0.3950

Question 4

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 5

An investor is risk neutral if she chooses the asset with lower risk given a choice of several assets with equal returns.

Accepted Answer

A) True 
 B)False

Question 6

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 7

Exhibit 7.4
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } 
\text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \
\hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 10 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 8 \% \
\left( \sigma _ { \mathrm { A } } \right) = 6 \% & \left( \sigma _ { \mathrm { B } } \right) = 5 \% \
\mathrm {~W} _ { \mathrm { A } } = 0.3 & \mathrm {~W} _ { \mathrm { B } } = 0.7 \
\mathrm { CO } V _ { \mathrm { A,B } } = 0.0008
\end{array}$$
-Refer to Exhibit 7.4. What is the standard deviation of this portfolio?

Accepted Answer

A) 5.02% 
B) 3.88% 
C) 6.21% 
D) 4.04% 
E) 4.34% 
A) 5.02% 
B) 3.88% 
C) 6.21% 
D) 4.04% 
E) 4.34%

Question 8

Exhibit 7.15
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } 
\text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \
\hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 14 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 16 \% \
\left( \sigma _ { \mathrm { A } } \right) = 13 \% & \left( \sigma _ { \mathrm { B } } \right) = 18 \% \
\mathrm {~W} _ { \mathrm { A } } = 0.4 & \mathrm {~W} _ { \mathrm { B } } = 0.6 \
\mathrm { CO } V _ { \mathrm { AB } } = 0.0024
\end{array}$$
-Refer to Exhibit 7.15. 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?

Accepted Answer

A) 13.8% 
B) 14.6% 
C) 15.0% 
D) 15.2% 
E) 16.8% 
A) 13.8% 
B) 14.6% 
C) 15.0% 
D) 15.2% 
E) 16.8%

Question 9

Exhibit 7.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } 
\text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \
\hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 10 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 14 \% \
\left( \sigma _ { \mathrm { A } } \right) = 7 \% & \left( \sigma _ { \mathrm { B } } \right) = 8 \% \
W _ { \mathrm { A } } = 0.7 & W _ { \mathrm { B } } = 0.3 \
\mathrm { COV } \
\mathrm { A,B } & = 0.0013
\end{array}$$
-Refer to Exhibit 7.8. 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?

Accepted Answer

A) 6.4% 
B) 9.1% 
C) 10.2% 
D) 10.8% 
E) 11.2% 
A) 6.4% 
B) 9.1% 
C) 10.2% 
D) 10.8% 
E) 11.2%

Question 10

Exhibit 7.10
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } 
\text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \
\hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 16 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 14 \% \
\left( \sigma _ { \mathrm { A } } \right) = 3 \% & \left( \sigma _ { \mathrm { B } } \right) = 8 \% \
W _ { \mathrm { A } } = 0.5 & W _ { \mathrm { B } } = 0.5 \
\mathrm { COV } V _ { \mathrm { A,B } } = 0.0014
\end{array}$$
-Refer to Exhibit 7.10. 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?

Accepted Answer

A) 11% 
B) 12% 
C) 13% 
D) 14% 
E) 15% 
A) 11% 
B) 12% 
C) 13% 
D) 14% 
E) 15%

Question 11

If equal risk is added moving along the envelope curve containing the best possible combinations the return will

Accepted Answer

A) Decrease at an increasing rate. 
B) Decrease at a decreasing rate. 
C) Increase at an increasing rate. 
D) Increase at a decreasing rate. 
E) Remain constant. 
A) Decrease at an increasing rate. 
B) Decrease at a decreasing rate. 
C) Increase at an increasing rate. 
D) Increase at a decreasing rate. 
E) Remain constant.

Question 12

What is the expected return of the three stock portfolio described below? $$\begin{array} { l c c } 
\text { Common Stock } & \text { Market Value } & \text { Expected Return } \
\hline \text { Alko Inc. } & 25,000 & 38 \% \
\text { Belmont Co. } & 100,000 & 10 \% \
\text { Cardo Inc. } & 75,000 & 16 \%
\end{array}$$

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 13

Between 1980 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.08 and 0.10, respectively, and the covariance of these index returns was 0.0007. What was the correlation coefficient between the two market indicators?

Accepted Answer

A) .0906 
B) .0985 
C) .0796 
D) .0875 
E) .0654 
A) .0906 
B) .0985 
C) .0796 
D) .0875 
E) .0654

Question 14

The slope of the utility curves for a strongly risk-averse investor, relative to the slope of the utility curves for a less risk-averse investor, will

Accepted Answer

A) Be steeper. 
B) Be flatter. 
C) Be vertical. 
D) Be horizontal. 
E) None of the above. 
A) Be steeper. 
B) Be flatter. 
C) Be vertical. 
D) Be horizontal. 
E) None of the above.

Question 15

Exhibit 7.5
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } 
\text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \
\hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 8 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 15 \% \
\left( \sigma _ { \mathrm { A } } \right) = 7 \% & \left( \sigma _ { \mathrm { B } } \right) = 10 \% \
W _ { \mathrm { A } } = 0.4 & W _ { \mathrm { B } } = 0.6 \
\mathrm { COV } V _ { \mathrm { A,B } } = 0.0006
\end{array}$$
-Refer to Exhibit 7.5. What is the standard deviation of this portfolio?

Accepted Answer

A) 3.89% 
B) 4.61% 
C) 5.02% 
D) 6.83% 
E) 6.09% 
A) 3.89% 
B) 4.61% 
C) 5.02% 
D) 6.83% 
E) 6.09%

Question 16

A positive relationship between expected return and expected risk is consistent with

Accepted Answer

A) investors being risk seekers. 
B) investors being risk avoiders. 
C) investors being risk averse. 
D) all of the above. 
E) none of the above. 
A) investors being risk seekers. 
B) investors being risk avoiders. 
C) investors being risk averse. 
D) all of the above. 
E) none of the above.

Question 17

As the number of risky assets in a portfolio increases, the total risk of the portfolio decreases.

Accepted Answer

A) True 
 B)False

A portfolio of two securities that are perfectly positively correlated has

All of the following are assumptions of the Markowitz model except

Exhibit 7.11 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 =0.28 =0.12 E =0.15E =0.11 =0.42=0.58 =0.7 -Refer to Exhibit 7.11. Calculate the expected standard deviation of the two stock portfolio.

The slope of the efficient frontier is calculated as follows

An investor is risk neutral if she chooses the asset with lower risk given a choice of several assets with equal returns.

A portfolio is considered to be efficient if:

Exhibit 7.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =10\% =8\% =6\% =5\% =0.3 =0.7 =0.0008 -Refer to Exhibit 7.4. What is the standard deviation of this portfolio?

If equal risk is added moving along the envelope curve containing the best possible combinations the return will

What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return Alko Inc. 25,000 38\% Belmont Co. 100,000 10\% Cardo Inc. 75,000 16\%

Between 1980 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.08 and 0.10, respectively, and the covariance of these index returns was 0.0007. What was the correlation coefficient between the two market indicators?

The slope of the utility curves for a strongly risk-averse investor, relative to the slope of the utility curves for a less risk-averse investor, will

Exhibit 7.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =8\% =15\% =7\% =10\% =0.4 =0.6 =0.0006 -Refer to Exhibit 7.5. What is the standard deviation of this portfolio?

A positive relationship between expected return and expected risk is consistent with

As the number of risky assets in a portfolio increases, the total risk of the portfolio decreases.

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

A portfolio of two securities that are perfectly positively correlated has

All of the following are assumptions of the Markowitz model except

Exhibit 7.11 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset 1 Asset 2 =0.28 =0.12 E =0.15E =0.11 =0.42=0.58 =0.7 -Refer to Exhibit 7.11. Calculate the expected standard deviation of the two stock portfolio.

The slope of the efficient frontier is calculated as follows

An investor is risk neutral if she chooses the asset with lower risk given a choice of several assets with equal returns.

A portfolio is considered to be efficient if:

Exhibit 7.4 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =10\% =8\% =6\% =5\% =0.3 =0.7 =0.0008 -Refer to Exhibit 7.4. What is the standard deviation of this portfolio?

If equal risk is added moving along the envelope curve containing the best possible combinations the return will

What is the expected return of the three stock portfolio described below? Common Stock Market Value Expected Return Alko Inc. 25,000 38\% Belmont Co. 100,000 10\% Cardo Inc. 75,000 16\%

Between 1980 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.08 and 0.10, respectively, and the covariance of these index returns was 0.0007. What was the correlation coefficient between the two market indicators?

The slope of the utility curves for a strongly risk-averse investor, relative to the slope of the utility curves for a less risk-averse investor, will

Exhibit 7.5 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Asset () Asset () =8\% =15\% =7\% =10\% =0.4 =0.6 =0.0006 -Refer to Exhibit 7.5. What is the standard deviation of this portfolio?

A positive relationship between expected return and expected risk is consistent with

As the number of risky assets in a portfolio increases, the total risk of the portfolio decreases.

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