Question 1

Industry effects are associated with

Accepted Answer

A)  the single index model 
B)  the multi-index model 
C)  the Markowitz model 
D)  the covariance matrix 
A)  the single index model 
B)  the multi-index model 
C)  the Markowitz model 
D)  the covariance matrix

Question 2

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the expected return for a portfolio with 80% invested in Stock A and 20% invested in Stock B?

Accepted Answer

A)  17% 
B)  19% 
C)  21% 
D)  23% 
A)  17% 
B)  19% 
C)  21% 
D)  23%

Question 3

Covariance is the product of two securities'

Accepted Answer

A)  expected deviations from their means 
B)  standard deviations 
C)  betas 
D)  standard deviations divided by their correlation 
A)  expected deviations from their means 
B)  standard deviations 
C)  betas 
D)  standard deviations divided by their correlation

Question 4

COV(A,B) = 0.50; the variance of the market is 0.25, and the beta of Security A is 1.00. What is the beta of security B?

Accepted Answer

A)  1.00 
B)  1.25 
C)  1.50 
D)  2.00 
A)  1.00 
B)  1.25 
C)  1.50 
D)  2.00

Question 5

The covariance between a constant and a random variable is

Accepted Answer

A)  zero 
B)  1.0 
C)  their correlation 
D)  the product of their betas 
A)  zero 
B)  1.0 
C)  their correlation 
D)  the product of their betas

Question 6

The questions relate to the following table of information:
  
-What is the percent invested in Stock X to yield the minimum variance portfolio with Stock X and Stock Y?

Accepted Answer

A)  0.21 
B)  0.38 
C)  0.51 
D)  0.69 
A)  0.21 
B)  0.38 
C)  0.51 
D)  0.69

Question 7

The questions relate to the following table of information:
  
-What is the expected return for a portfolio with 20% invested in X and 80% invested in Y?

Accepted Answer

A)  14.9% 
B)  15.6% 
C)  16.5% 
D)  17.2% 
A)  14.9% 
B)  15.6% 
C)  16.5% 
D)  17.2%

Question 8

Suppose Stock M has an expected return of 10%, a standard deviation of 15%, and a Beta of 0.6 while Stock N has an expected return of 20%, a standard deviation of 25% and a beta of 1.04, and the correlation between the two stocks is 0.50. What is the covariance between Stock M and Stock N?

Accepted Answer

A)  0.01052 
B)  0.01875 
C)  0.03425 
D)  0.04775 
A)  0.01052 
B)  0.01875 
C)  0.03425 
D)  0.04775

Question 9

The work of Harry Markowitz is based on the search for

Accepted Answer

A)  efficient portfolios 
B)  undervalued securities 
C)  the highest long-term growth rates 
D)  minimum risk portfolios 
A)  efficient portfolios 
B)  undervalued securities 
C)  the highest long-term growth rates 
D)  minimum risk portfolios

Question 10

Suppose Stock M has an expected return of 10%, a standard deviation of 15%, and a Beta of 0.6 while Stock N has an expected return of 20%, a standard deviation of 25% and a beta of 1.04, and the correlation between the two stocks is 0.50. What is the standard deviation for a portfolio with 70% invested in Stock M and 30% invested in Stock N?

Accepted Answer

A)  12.5% 
B)  13.6% 
C)  15.7% 
D)  18.0% 
A)  12.5% 
B)  13.6% 
C)  15.7% 
D)  18.0%

Question 11

The questions relate to the following table of information:
  
-What is the standard deviation for a portfolio with 20% invested in X and 80% invested in Y?

Accepted Answer

A)  41.2% 
B)  45.8% 
C)  47.1% 
D)  49.6% 
A)  41.2% 
B)  45.8% 
C)  47.1% 
D)  49.6%

Question 12

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the standard deviation for a portfolio with 80% invested in Stock A and 20% invested in Stock B?

Accepted Answer

A)  15.8% 
B)  18.4% 
C)  22.0% 
D)  28.0% 
A)  15.8% 
B)  18.4% 
C)  22.0% 
D)  28.0%

Question 13

Suppose Stock M has an expected return of 10%, a standard deviation of 15%, and a Beta of 0.6 while Stock N has an expected return of 20%, a standard deviation of 25% and a beta of 1.04, and the correlation between the two stocks is 0.50. What is the expected return for a portfolio with 70% invested in Stock M and 30% invested in Stock N?

Accepted Answer

A)  11% 
B)  13% 
C)  15% 
D)  17% 
A)  11% 
B)  13% 
C)  15% 
D)  17%

Question 14

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the beta for a portfolio with 80% invested in Stock A and 20% invested in Stock B?

Accepted Answer

A)  0.57 
B)  0.77 
C)  0.97 
D)  1.17 
A)  0.57 
B)  0.77 
C)  0.97 
D)  1.17

Question 15

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the covariance between Stock A and Stock B?

Accepted Answer

A)  0.015 
B)  0.025 
C)  0.035 
D)  0.045 
A)  0.015 
B)  0.025 
C)  0.035 
D)  0.045

Question 16

There are 1,700 stocks in the Value Line index. How many betas would have to be calculated in order to find the portfolio variance?

Accepted Answer

A)  1,700 
B)  5,650 
C)  12,350 
D)  1,444,150 
A)  1,700 
B)  5,650 
C)  12,350 
D)  1,444,150

Question 17

One of the first proponents of the single index model was

Accepted Answer

A)  William Sharpe 
B)  Robert Merton 
C)  Eugene Fama 
D)  Merton Miller 
A)  William Sharpe 
B)  Robert Merton 
C)  Eugene Fama 
D)  Merton Miller

Question 18

Covariance is _____ correlation is ______.

Accepted Answer

A)  positive, positive or negative 
B)  negative, positive or negative 
C)  positive or negative, positive or zero 
D)  positive or negative, positive or negative 
A)  positive, positive or negative 
B)  negative, positive or negative 
C)  positive or negative, positive or zero 
D)  positive or negative, positive or negative

Question 19

The covariance between a security's returns and those of the market index is 0.03. If the security beta is 1.15, what is the market variance?

Accepted Answer

A)  0.005 
B)  0.010 
C)  0.021 
D)  0.026 
A)  0.005 
B)  0.010 
C)  0.021 
D)  0.026

Question 20

There are 1,700 stocks in the Value Line index. How many covariances would have to be calculated in order to use the Markowitz full covariance model?

Accepted Answer

A)  1,700 
B)  5,650 
C)  12,350 
D)  1,444,150 
A)  1,700 
B)  5,650 
C)  12,350 
D)  1,444,150

Industry effects are associated with

Covariance is the product of two securities'

COV(A,B) = 0.50; the variance of the market is 0.25, and the beta of Security A is 1.00. What is the beta of security B?

The covariance between a constant and a random variable is

The questions relate to the following table of information: -What is the percent invested in Stock X to yield the minimum variance portfolio with Stock X and Stock Y?

The questions relate to the following table of information: -What is the expected return for a portfolio with 20% invested in X and 80% invested in Y?

Suppose Stock M has an expected return of 10%, a standard deviation of 15%, and a Beta of 0.6 while Stock N has an expected return of 20%, a standard deviation of 25% and a beta of 1.04, and the correlation between the two stocks is 0.50. What is the covariance between Stock M and Stock N?

The work of Harry Markowitz is based on the search for

The questions relate to the following table of information: -What is the standard deviation for a portfolio with 20% invested in X and 80% invested in Y?

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the covariance between Stock A and Stock B?

There are 1,700 stocks in the Value Line index. How many betas would have to be calculated in order to find the portfolio variance?

One of the first proponents of the single index model was

Covariance is _ correlation is __.

The covariance between a security's returns and those of the market index is 0.03. If the security beta is 1.15, what is the market variance?

There are 1,700 stocks in the Value Line index. How many covariances would have to be calculated in order to use the Markowitz full covariance model?

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

Filters

Exam 5: The Mathematics of Diversification

Industry effects are associated with

Covariance is the product of two securities'

COV(A,B) = 0.50; the variance of the market is 0.25, and the beta of Security A is 1.00. What is the beta of security B?

The covariance between a constant and a random variable is

The questions relate to the following table of information: -What is the percent invested in Stock X to yield the minimum variance portfolio with Stock X and Stock Y?

The questions relate to the following table of information: -What is the expected return for a portfolio with 20% invested in X and 80% invested in Y?

Suppose Stock M has an expected return of 10%, a standard deviation of 15%, and a Beta of 0.6 while Stock N has an expected return of 20%, a standard deviation of 25% and a beta of 1.04, and the correlation between the two stocks is 0.50. What is the covariance between Stock M and Stock N?

The work of Harry Markowitz is based on the search for

The questions relate to the following table of information: -What is the standard deviation for a portfolio with 20% invested in X and 80% invested in Y?

Suppose Stock A has an expected return of 15%, a standard deviation of 20%, and a Beta of 0.4 while Stock B has an expected return of 25%, a standard deviation of 30% and a beta of 1.25, and the correlation between the two stocks is 0.25. What is the covariance between Stock A and Stock B?

There are 1,700 stocks in the Value Line index. How many betas would have to be calculated in order to find the portfolio variance?

One of the first proponents of the single index model was

Covariance is _____ correlation is ______.

The covariance between a security's returns and those of the market index is 0.03. If the security beta is 1.15, what is the market variance?

There are 1,700 stocks in the Value Line index. How many covariances would have to be calculated in order to use the Markowitz full covariance model?

The Process of Portfolio Management

Valuation, Risk, Return, and Uncertainty

Setting Portfolio Objectives

Investment Policy

Why Diversification Is a Good Idea

International Investment and Diversification

The Capital Markets and Market Efficiency

Picking the Equity Players

Equity Valuation Tools

Security Screening

Bond Pricing and Selection

The Role of Real Assets

Alternative Assets

Revision of the Equity Portfolio

Revision of the Fixed-Income Portfolio

Principles of Options and Option Pricing

Option Overwriting

Performance Evaluation

Fiduciary Duties and Responsibilities

Principles of the Futures Market

Benching the Equity Players

Removing Interest Rate Risk

Integrating Derivative Assets and Portfolio Management

Contemporary Issues in Portfolio Management

Filters

Covariance is _ correlation is __.