Question 1

The betas of most stocks are constant over time.

Accepted Answer

A) True 
 B)False

Question 2

For two portfolios with equal betas, the one with the higher standard deviation will be efficient.

Accepted Answer

A) True 
 B)False

Question 3

Beta is more useful in explaining an individual security's return fluctuations than a large portfolio's return fluctuations.

Accepted Answer

A) True 
 B)False

Question 4

Which of the following measures or concepts are deliberately used by modern portfolio theory?
I. beta
II. inter industry diversification
III. efficient frontier
IV. correlation

Accepted Answer

A)  II and III only 
B)  I and IV only 
C)  I, III and IV only 
D)  I, II, III and IV 
A)  II and III only 
B)  I and IV only 
C)  I, III and IV only 
D)  I, II, III and IV

Question 5

Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

Accepted Answer

A) True 
 B)False

Question 6

If the returns on a stock are positively correlated with market returns, the stock will have a positive beta.

Accepted Answer

A) True 
 B)False

Question 7

Analysts commonly use the______ to measure market return.

Accepted Answer

A)  the Dow Jones Industrial Average 
B)  the rate of return on 10 year Treasury bonds 
C)  some large, mainstream company such as General Electric 
D)  the Standard & Poor's 500 Index 
A)  the Dow Jones Industrial Average 
B)  the rate of return on 10 year Treasury bonds 
C)  some large, mainstream company such as General Electric 
D)  the Standard & Poor's 500 Index

Question 8

The returns on the stock of DEF and GHI companies over a 4 year period are shown below: $$\begin{array} { | l | l | l | } 
\hline \text { Year } & \text { DEF } & \text { GHI } \
\hline & 8 \% & 11 \% \
\hline & 12 \% & 9 \% \
\hline & - 5 \% & - 9 \% \
\hline & 6 \% & 13 \% \
\hline
\end{array}$$ From this limited data you should conclude that returns on

Accepted Answer

A)  DEF and GHI are negatively correlated. 
B)  DEF and GHI are somewhat positively correlated. 
C)  DEF and GHI are perfectly positively correlated. 
D)  DEF and GHI are uncorrelated. 
A)  DEF and GHI are negatively correlated. 
B)  DEF and GHI are somewhat positively correlated. 
C)  DEF and GHI are perfectly positively correlated. 
D)  DEF and GHI are uncorrelated.

Question 9

Andrew has the following portfolio of assets. $$\begin{array} { l c l } 
& \text { Proportion of } & \
\text { Stock } & \text { Portfolio } & \text { Beta } \
\hline \text { ABC } & \$ 8.000 & 1.10 \
\text { DEF } & \$ 11,000 & .95 \
\text { GHI } & \$ 6,000 & 1.05 \
\hline
\end{array}$$ What is the beta of Andrew's portfolio?

Accepted Answer

A)  0.98 
B)  1.00 
C)  1.02 
D)  1.03 
A)  0.98 
B)  1.00 
C)  1.02 
D)  1.03

Question 10

Coefficients of correlation range from a maximum of +10 to a minimum of -10.

Accepted Answer

A) True 
 B)False

Question 11

Returns on the stock of First Boston and Midas Metals for the years 2017-2020 are shown below.
 $$\begin{array} { | r | r | r | r | } 
\hline & \begin{array} { r } 
\text { First } \
\text { Boston }
\end{array} & \text { Midas Metals } & \text { Portfolio } \
\hline 2017 & - 18.00 \% & 26.00 \% & \
\hline 2019 & 32.00 \% & - 5.00 \% & \
\hline 2019 & 18.009 / & 3.00 \% & \
\hline 2020 & 1.009 & 10.009 & \
\hline
\end{array}$$ a. Compute the average annual return for each stock and a portfolio consisting of 50% First Boston and 50% Midas.
b. Compute the standard deviation for each stock and the portfolio.
c. Are the stocks positively or negatively correlated and what is the effect on risk?

Accepted Answer

\[\begin{array} { | r | r | r | r | } 
\

Question 12

Which of the following guidelines are appropriate for inclusion in a portfolio management policy?
I. Diversify among different types of securities and across industry and geographic lines.
II. Determine the risk level and financial situation of the individual investor.
III. Utilize beta to help align the portfolio to the risk level of the investor.
IV. Minimize the standard deviation of each security in the portfolio.

Accepted Answer

A)  I, II and IV only 
B)  II, III and IV only 
C)  I, II and III only 
D)  I, II, III and IV 
A)  I, II and IV only 
B)  II, III and IV only 
C)  I, II and III only 
D)  I, II, III and IV

Question 13

A well-diversified portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

Accepted Answer

A) True 
 B)False

Question 14

Portfolio betas will always be lower than the weighted average betas of the securities in the portfolio.

Accepted Answer

A) True 
 B)False

Question 15

Correlation is a measure of the relationship between two series of numbers.

Accepted Answer

A) True 
 B)False

Question 16

Diversifiable risk is also called systematic risk.

Accepted Answer

A) True 
 B)False

Question 17

The basic theory linking portfolio risk and return is the Capital Asset Pricing Model.

Accepted Answer

A) True 
 B)False

Question 18

Which one of the following conditions can be effectively eliminated through portfolio diversification?

Accepted Answer

A)  a general price increase nationwide 
B)  an interest rate reduction by the Federal Reserve 
C)  increased government regulation of auto emissions 
D)  change in the political party that controls Congress 
A)  a general price increase nationwide 
B)  an interest rate reduction by the Federal Reserve 
C)  increased government regulation of auto emissions 
D)  change in the political party that controls Congress

Question 19

Which of the following statements about the Security Market Line are correct?
I. The intercept point is the risk-free rate of return.
II. The slope of the line is beta.
III. An investor should accept any return located above the SML line.
IV. A beta of 1.0 indicates the risk-free rate of return.

Accepted Answer

A)  I and III only 
B)  III and IV only 
C)  II, III and IV only 
D)  I,II and III only 
A)  I and III only 
B)  III and IV only 
C)  II, III and IV only 
D)  I,II and III only

Question 20

Estimates of a stock's beta may vary depending on
I. when the estimate was made.
II. the risk-free rate of interest used.
III. how many months of returns were used to estimate the beta.
IV. the index used to represent market returns.

Accepted Answer

A)  I, II and IV only 
B)  II and IV only 
C)  I, III and IV only 
D)  I, II and III only 
A)  I, II and IV only 
B)  II and IV only 
C)  I, III and IV only 
D)  I, II and III only

The betas of most stocks are constant over time.

For two portfolios with equal betas, the one with the higher standard deviation will be efficient.

Beta is more useful in explaining an individual security's return fluctuations than a large portfolio's return fluctuations.

Which of the following measures or concepts are deliberately used by modern portfolio theory? I. beta II. inter industry diversification III. efficient frontier IV. correlation

Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

If the returns on a stock are positively correlated with market returns, the stock will have a positive beta.

Analysts commonly use the______ to measure market return.

The returns on the stock of DEF and GHI companies over a 4 year period are shown below: Year DEF GHI 8\% 11\% 12\% 9\% -5\% -9\% 6\% 13\% From this limited data you should conclude that returns on

Andrew has the following portfolio of assets. Proportion of Stock Portfolio Beta ABC \ 8.000 1.10 DEF \ 11,000 .95 GHI \ 6,000 1.05 What is the beta of Andrew's portfolio?

Coefficients of correlation range from a maximum of +10 to a minimum of -10.

A well-diversified portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

Portfolio betas will always be lower than the weighted average betas of the securities in the portfolio.

Correlation is a measure of the relationship between two series of numbers.

Diversifiable risk is also called systematic risk.

The basic theory linking portfolio risk and return is the Capital Asset Pricing Model.

Which one of the following conditions can be effectively eliminated through portfolio diversification?

Which of the following statements about the Security Market Line are correct? I. The intercept point is the risk-free rate of return. II. The slope of the line is beta. III. An investor should accept any return located above the SML line. IV. A beta of 1.0 indicates the risk-free rate of return.

Estimates of a stock's beta may vary depending on I. when the estimate was made. II. the risk-free rate of interest used. III. how many months of returns were used to estimate the beta. IV. the index used to represent market returns.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 5: Modern Portfolio Concepts

The betas of most stocks are constant over time.

For two portfolios with equal betas, the one with the higher standard deviation will be efficient.

Beta is more useful in explaining an individual security's return fluctuations than a large portfolio's return fluctuations.

Which of the following measures or concepts are deliberately used by modern portfolio theory? I. beta II. inter industry diversification III. efficient frontier IV. correlation

Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

If the returns on a stock are positively correlated with market returns, the stock will have a positive beta.

Analysts commonly use the______ to measure market return.

The returns on the stock of DEF and GHI companies over a 4 year period are shown below: Year DEF GHI 8\% 11\% 12\% 9\% -5\% -9\% 6\% 13\% From this limited data you should conclude that returns on

Andrew has the following portfolio of assets. Proportion of Stock Portfolio Beta ABC \ 8.000 1.10 DEF \ 11,000 .95 GHI \ 6,000 1.05 What is the beta of Andrew's portfolio?

Coefficients of correlation range from a maximum of +10 to a minimum of -10.

A well-diversified portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

Portfolio betas will always be lower than the weighted average betas of the securities in the portfolio.

Correlation is a measure of the relationship between two series of numbers.

Diversifiable risk is also called systematic risk.

The basic theory linking portfolio risk and return is the Capital Asset Pricing Model.

Which one of the following conditions can be effectively eliminated through portfolio diversification?

Which of the following statements about the Security Market Line are correct? I. The intercept point is the risk-free rate of return. II. The slope of the line is beta. III. An investor should accept any return located above the SML line. IV. A beta of 1.0 indicates the risk-free rate of return.

Estimates of a stock's beta may vary depending on I. when the estimate was made. II. the risk-free rate of interest used. III. how many months of returns were used to estimate the beta. IV. the index used to represent market returns.

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters