Question 1

Investing globally offers better diversification than investing only domestically.

Accepted Answer

A) True 
 B)False

Question 2

The statement "A portfolio is less than the sum of its parts." means

Accepted Answer

A)  it is less expensive to buy a group of assets than to buy those assets individually. 
B)  portfolio returns will always be lower than the returns on individual stocks. 
C)  a diversified group of assets will be less volatile than the individual assets within the group. 
D)  for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components. 
A)  it is less expensive to buy a group of assets than to buy those assets individually. 
B)  portfolio returns will always be lower than the returns on individual stocks. 
C)  a diversified group of assets will be less volatile than the individual assets within the group. 
D)  for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components.

Question 3

A portfolio consisting of four stocks is expected to produce returns of 9%, -11%, 13% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?

Accepted Answer

A)  10.05% 
B)  11.60% 
C)  12.44% 
D)  33.42% 
A)  10.05% 
B)  11.60% 
C)  12.44% 
D)  33.42%

Question 4

Alexis has inherited $120,000 from her grandmother's estate. She has decided to invest $10,000 in each of 12 different industries. Because she has lower than average risk tolerance, she carefully seeks out stocks so that her portfolio will have a weighted average beta of .80.

Accepted Answer

A)  Alexis is using traditional portfolio management techniques. 
B)  Alexis is using modern portfolio management techniques. 
C)  Alexis is using a combination of modern and traditional portfolio management techniques. 
D)  Alexis seems to be unaware of modern portfolio management techniques. 
A)  Alexis is using traditional portfolio management techniques. 
B)  Alexis is using modern portfolio management techniques. 
C)  Alexis is using a combination of modern and traditional portfolio management techniques. 
D)  Alexis seems to be unaware of modern portfolio management techniques.

Question 5

If there is no relationship between the rates of return of two assets over time, these assets are

Accepted Answer

A)  positively correlated. 
B)  negatively correlated. 
C)  perfectly negatively correlated. 
D)  uncorrelated. 
A)  positively correlated. 
B)  negatively correlated. 
C)  perfectly negatively correlated. 
D)  uncorrelated.

Question 6

Hannah owns the following portfolio of stocks. What is the return on her portfolio? $$\begin{array} { c c c } 
\text { Stock } & \text { Amount Invested } & \text { Return on Stock } \
\hline \text { A } & \$ 10,000 & 15.5 \% \
\text { B } & \$ 8,000 & 11.0 \% \
\text { C } & \$ 7,000 & 6.3 \% \
\hline
\end{array}$$

Accepted Answer

A)  7.27% 
B)  10.93% 
C)  11.49% 
D)  32.8% 
A)  7.27% 
B)  10.93% 
C)  11.49% 
D)  32.8%

Question 7

By plotting the efficient frontier, investors can find the unique portfolio that is ideal for all investors.

Accepted Answer

A) True 
 B)False

Question 8

An efficient portfolio maximizes the rate of return without consideration of risk.

Accepted Answer

A) True 
 B)False

Question 9

In the Capital Asset Pricing Model, a stock's expected rate of return will depend on its total risk.

Accepted Answer

A) True 
 B)False

Question 10

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Accepted Answer

A) True 
 B)False

Question 11

Which of the following represent systematic risks?
I. the president of a company suddenly resigns
II. the economy goes into a recessionary period
III. a company's product is recalled for defects
IV. the Federal Reserve unexpectedly changes interest rates

Accepted Answer

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

Question 12

OKAY stock has a beta of 0.8. The market as a whole is expected to decline by 12% thereby causing OKAY stock to

Accepted Answer

A)  decline by 9.6%. 
B)  decline by 12.5%. 
C)  increase by 9.6%. 
D)  increase by 12%. 
A)  decline by 9.6%. 
B)  decline by 12.5%. 
C)  increase by 9.6%. 
D)  increase by 12%.

Question 13

Modern portfolio theory and traditional portfolio management may both result in highly diversified portfolios.

Accepted Answer

A) True 
 B)False

Question 14

Explain the relationship between correlation, diversification, and risk reduction.

Accepted Answer

Correlation is a statistic that measures

Question 15

By design, half of all stocks betas are positive betas and half are negative.

Accepted Answer

A) True 
 B)False

Question 16

Which of the following investments will provide some measure of international diversification to a portfolio?

Accepted Answer

A)  mutual funds with an international focus 
B)  stocks of U.S. based companies with extensive foreign sales and/or operations 
C)  American Depositary Receipts 
D)  All of the above 
A)  mutual funds with an international focus 
B)  stocks of U.S. based companies with extensive foreign sales and/or operations 
C)  American Depositary Receipts 
D)  All of the above

Question 17

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 18

The beta of the market is

Accepted Answer

A)  -1.0. 
B)  0.0. 
C)  1.0. 
D)  undefined. 
A)  -1.0. 
B)  0.0. 
C)  1.0. 
D)  undefined.

Question 19

Which one of the following will provide the greatest international diversification?

Accepted Answer

A)  directly purchasing a foreign stock 
B)  purchasing stock of a U.S. multinational firm 
C)  purchasing an ADR 
D)  purchasing shares of an international mutual fund 
A)  directly purchasing a foreign stock 
B)  purchasing stock of a U.S. multinational firm 
C)  purchasing an ADR 
D)  purchasing shares of an international mutual fund

Question 20

The total risk of a portfolio is measured by its

Accepted Answer

A)  beta. 
B)  coefficient of correlation. 
C)  standard deviation. 
D)  standard deviation plus beta. 
A)  beta. 
B)  coefficient of correlation. 
C)  standard deviation. 
D)  standard deviation plus beta.

Investing globally offers better diversification than investing only domestically.

The statement "A portfolio is less than the sum of its parts." means

A portfolio consisting of four stocks is expected to produce returns of 9%, -11%, 13% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?

Alexis has inherited $120,000 from her grandmother's estate. She has decided to invest $10,000 in each of 12 different industries. Because she has lower than average risk tolerance, she carefully seeks out stocks so that her portfolio will have a weighted average beta of .80.

If there is no relationship between the rates of return of two assets over time, these assets are

Hannah owns the following portfolio of stocks. What is the return on her portfolio? Stock Amount Invested Return on Stock A \ 10,000 15.5\% B \ 8,000 11.0\% C \ 7,000 6.3\%

By plotting the efficient frontier, investors can find the unique portfolio that is ideal for all investors.

An efficient portfolio maximizes the rate of return without consideration of risk.

In the Capital Asset Pricing Model, a stock's expected rate of return will depend on its total risk.

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Which of the following represent systematic risks? I. the president of a company suddenly resigns II. the economy goes into a recessionary period III. a company's product is recalled for defects IV. the Federal Reserve unexpectedly changes interest rates

OKAY stock has a beta of 0.8. The market as a whole is expected to decline by 12% thereby causing OKAY stock to

Modern portfolio theory and traditional portfolio management may both result in highly diversified portfolios.

Explain the relationship between correlation, diversification, and risk reduction.

By design, half of all stocks betas are positive betas and half are negative.

Which of the following investments will provide some measure of international diversification to a portfolio?

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

The beta of the market is

Which one of the following will provide the greatest international diversification?

The total risk of a portfolio is measured by its

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

Investing globally offers better diversification than investing only domestically.

The statement "A portfolio is less than the sum of its parts." means

A portfolio consisting of four stocks is expected to produce returns of 9%, -11%, 13% and 17%, respectively, over the next four years. What is the standard deviation of these expected returns?

Alexis has inherited $120,000 from her grandmother's estate. She has decided to invest $10,000 in each of 12 different industries. Because she has lower than average risk tolerance, she carefully seeks out stocks so that her portfolio will have a weighted average beta of .80.

If there is no relationship between the rates of return of two assets over time, these assets are

Hannah owns the following portfolio of stocks. What is the return on her portfolio? Stock Amount Invested Return on Stock A \ 10,000 15.5\% B \ 8,000 11.0\% C \ 7,000 6.3\%

By plotting the efficient frontier, investors can find the unique portfolio that is ideal for all investors.

An efficient portfolio maximizes the rate of return without consideration of risk.

In the Capital Asset Pricing Model, a stock's expected rate of return will depend on its total risk.

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Which of the following represent systematic risks? I. the president of a company suddenly resigns II. the economy goes into a recessionary period III. a company's product is recalled for defects IV. the Federal Reserve unexpectedly changes interest rates

OKAY stock has a beta of 0.8. The market as a whole is expected to decline by 12% thereby causing OKAY stock to

Modern portfolio theory and traditional portfolio management may both result in highly diversified portfolios.

Explain the relationship between correlation, diversification, and risk reduction.

By design, half of all stocks betas are positive betas and half are negative.

Which of the following investments will provide some measure of international diversification to a portfolio?

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

The beta of the market is

Which one of the following will provide the greatest international diversification?

The total risk of a portfolio is measured by its

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