Exam 5: Risk and Return: Past and Prologue

In a return-standard deviation space,which of the following statements is(are)true for risk-averse investors? (The vertical and horizontal lines are referred to as the expected return-axis and the standard deviation-axis,respectively. ) I.An investor's own indifference curves might intersect. II.Indifference curves have negative slopes. III.In a set of indifference curves,the highest offers the greatest utility. IV.Indifference curves of two investors might intersect.

Given the capital allocation line,an investor's optimal portfolio is the portfolio that

An investor can choose to invest in T-bills paying 5% or a risky portfolio with end-of-year cash flow of $132,000.If the investor requires a risk premium of 5%,what would she be willing to pay for the risky portfolio?

If you want to form a portfolio with an expected rate of return of 0.10,what percentages of your money must you invest in the T-bill,X,and Y,respectively if you keep X and Y in the same proportions to each other as in portfolio P?

Steve is more risk-averse than Edie.On a graph that shows Steve's and Edie's indifference curves,which of the following is true? Assume that the graph shows expected return on the vertical axis and standard deviation on the horizontal axis. I.Steve and Edie's indifference curves might intersect. II.Steve's indifference curves will have flatter slopes than Edie's. III.Steve's indifference curves will have steeper slopes than Edie's. IV.Steve and Edie's indifference curves will not intersect. V.Steve's indifference curves will be downward sloping and Edie's will be upward sloping.

Discuss the differences between the asset allocation decision and the security selection decision.

The change from a straight to a kinked capital allocation line is a result of:

A reward-to-volatility ratio is useful in:

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05.A portfolio that has an expected outcome of $115 is formed by

Which one of the following statements regarding hedging is true?

Which of the following statements is(are)true? I.Risk-averse investors reject investments that are fair games. II.Risk-neutral investors judge risky investments only by the expected returns. III.Risk-averse investors judge investments only by their riskiness. IV.Risk-loving investors will not engage in fair games.

Elias is a risk-averse investor.David is a less risk-averse investor than Elias.Therefore,

A fair game

The first major step in asset allocation is:

The Capital Allocation Line can be described as the

The standard deviation of a portfolio that has 40% of its value invested in a risk-free asset and 60% of its value invested in a risky asset with a standard deviation of 30% is

Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor.

When an investment advisor attempts to determine an investor's risk tolerance,which factor would they be least likely to assess?

According to the mean-variance criterion,which one of the following investments dominates all others?

Consider the following two investment alternatives.First,a risky portfolio that pays a 15 percent rate of return with a probability of 60% or a 5 percent return with a probability of 40%,and second,a T-bill that pays 6 percent.If you invest $50,000 in the risky portfolio,your expected profit would be __________.