According to the mean-variance criterion,which of the statements below is correct? \[\begin{array} { l l l } \text { Investment } & \mathrm { E } ( \mathrm { r } ) & \text { Standard Deviation } \\ \mathrm { A } & 10 \% & 5 \% \\ \mathrm {~B} & 21 \% & 11 \% \\ \mathrm { C } & 18 \% & 23 \% \\ \mathrm { D } & 24 \% & 16 \% \end{array}\]

A) Investment B dominates Investment A. B) Investment B dominates Investment C. C) Investment D dominates all of the other investments. D) Investment D dominates only Investment B. E) Investment C dominates investment A. A) Investment B dominates Investment A. B) Investment B dominates Investment C. C) Investment D dominates all of the other investments. D) Investment D dominates only Investment B. E) Investment C dominates investment A. B

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. \[\begin{array} { l l } \mathrm { E } \left( \mathrm { R } _ { \mathrm { p } } \right) & 12.00 \% \\ \text { Standard Deviation of P } & 7.20 \% \\ \text { T-Bill rate } & 3.60 \% \\ & \\ \text { Proportion of Complete Portfolio in P } & 80 \% \\ \text { Proportion of Complete Portfolio in T-Bills } & 20 \% \\ & \\ \text { Composition of P: } & \\ \text { Stock A } & 40.00 \% \\ \text { Stock B } & 25.00 \% \\ \text { Stock C } & 35.00 \% \\ \hline \text { Total } & \underline { 100.00 \% } \\ \hline \end{array}\] -What is the expected return on Bo's complete portfolio?

A) 10.32% B) 5.28% C) 9.62% D) 8.44% E) 7.58% A) 10.32% B) 5.28% C) 9.62% D) 8.44% E) 7.58%

Exam 6: Risk Aversion and Capital Allocation to Risky Assets

According to the mean-variance criterion,which of the statements below is correct? Investment () Standard Deviation 10\% 5\% 21\% 11\% 18\% 23\% 24\% 16\%

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Question 1

Correct Answer:

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An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70 percent in a T-bill that pays 6 percent.His portfolio's expected return and standard deviation are and ,respectively.

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Question 2

Correct Answer:

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Discuss the differences between investors who are risk averse,risk neutral,and risk loving.

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Question 3

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The investor who is risk averse will take additional risk only if that risk-taking is likely to be rewarded with a risk premium. This investor examines the potential risk-return trade-offs of investment alternatives. The investor who is risk neutral looks only at the expected returns of the investment alternative and does not consider risk; this investor will select the investment alternative with the highest expected rate of return. The risk lover will engage in fair games and gambles; this investor adjusts the expected return upward to take into account the "fun" of confronting risk.

The certainty equivalent rate of a portfolio is

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Question 4

What would be the dollar values of your positions in X and Y,respectively,if you decide to hold 40% percent of your money in the risky portfolio and 60% in T-bills?

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Question 5

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. -The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

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Question 6

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.

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Question 7

Draw graphs that represent indifference curves for the following investors: Harry,who is a risk-averse investor; Eddie,who is a risk-neutral investor; and Ozzie,who is a risk-loving investor.Discuss the nature of each curve and the reasons for its shape.

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Question 8

Which of the following statements regarding risk-averse investors is true?

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Question 9

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. 12.00\% Standard Deviation of P 7.20\% T-Bill rate 3.60\% Proportion of Complete Portfolio in P 80\% Proportion of Complete Portfolio in T-Bills 20\% Composition of P: Stock A 40.00\% Stock B 25.00\% Stock C 35.00\% Total -What is the expected return on Bo's complete portfolio?

(Multiple Choice)

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Question 10

An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 30 percent in a T-bill that pays 3 percent.His portfolio's expected return and standard deviation are and ,respectively.

(Multiple Choice)

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Question 11

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

(Multiple Choice)

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Question 12

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. -The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

(Multiple Choice)

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Question 13

An investor invests 40 percent of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60 percent in a T-bill that pays 4.5 percent.His portfolio's expected return and standard deviation are and ,respectively.

(Multiple Choice)

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Question 14

You invest $1000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. -What percentages of your money must be invested in the risky asset and the risk-free asset,respectively,to form a portfolio with an expected return of 0.11?

(Multiple Choice)

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Question 15

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. -What percentages of your money must be invested in the risky asset and the risk-free asset,respectively,to form a portfolio with an expected return of 0.09?

(Multiple Choice)

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Question 16

Treasury bills are commonly viewed as risk-free assets because

(Multiple Choice)

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Question 17

Toby and Hannah are two risk-averse investors.Toby is more risk-averse than Hannah.Draw one indifference curve for Toby and one indifference curve for Hannah on the same graph.Show how these curves illustrate their relative levels of risk aversion.

(Essay)

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Question 18

A reward-to-volatility ratio is useful in:

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Question 19

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. -What percentages of your money must be invested in the risk-free asset and the risky asset,respectively,to form a portfolio with a standard deviation of 0.06?

(Multiple Choice)

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Question 20

Showing 1 - 20 of 73

Exam 6: Risk Aversion and Capital Allocation to Risky Assets

According to the mean-variance criterion,which of the statements below is correct? Investment () Standard Deviation 10\% 5\% 21\% 11\% 18\% 23\% 24\% 16\%

An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70 percent in a T-bill that pays 6 percent.His portfolio's expected return and standard deviation are __________ and __________,respectively.

Discuss the differences between investors who are risk averse,risk neutral,and risk loving.

The certainty equivalent rate of a portfolio is

What would be the dollar values of your positions in X and Y,respectively,if you decide to hold 40% percent of your money in the risky portfolio and 60% in T-bills?

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. -The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

Draw graphs that represent indifference curves for the following investors: Harry,who is a risk-averse investor; Eddie,who is a risk-neutral investor; and Ozzie,who is a risk-loving investor.Discuss the nature of each curve and the reasons for its shape.

Which of the following statements regarding risk-averse investors is true?

An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 30 percent in a T-bill that pays 3 percent.His portfolio's expected return and standard deviation are __________ and __________,respectively.

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

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. -The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

An investor invests 40 percent of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60 percent in a T-bill that pays 4.5 percent.His portfolio's expected return and standard deviation are __________ and __________,respectively.

Treasury bills are commonly viewed as risk-free assets because

Toby and Hannah are two risk-averse investors.Toby is more risk-averse than Hannah.Draw one indifference curve for Toby and one indifference curve for Hannah on the same graph.Show how these curves illustrate their relative levels of risk aversion.

A reward-to-volatility ratio is useful in:

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Optimal Risky Portfolios

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70 percent in a T-bill that pays 6 percent.His portfolio's expected return and standard deviation are and ,respectively.

An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 30 percent in a T-bill that pays 3 percent.His portfolio's expected return and standard deviation are and ,respectively.

An investor invests 40 percent of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60 percent in a T-bill that pays 4.5 percent.His portfolio's expected return and standard deviation are and ,respectively.