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 equation of Bo's Capital Allocation Line?

A) E(r C) = 7.2 + 3.6 * Standard Deviation of C B) E(r C) = 3.6 + 1.167 * Standard Deviation of C C) E(r C) = 3.6 + 12.0 * Standard Deviation of C D) E(r C) = 0.2 + 1.167 * Standard Deviation of C E) E(r C) = 3.6 + 0.857 * Standard Deviation of C A) E(r C) = 7.2 + 3.6 * Standard Deviation of C B) E(r C) = 3.6 + 1.167 * Standard Deviation of C C) E(r C) = 3.6 + 12.0 * Standard Deviation of C D) E(r C) = 0.2 + 1.167 * Standard Deviation of C E) E(r C) = 3.6 + 0.857 * Standard Deviation of C

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 standard deviation of Bo's complete portfolio?

A) 7.20% B) 5.40% C) 6.92% D) 4.98% E) 5.76% A) 7.20% B) 5.40% C) 6.92% D) 4.98% E) 5.76%

A) will not be undertaken by a risk-averse investor. B) is a risky investment with a zero risk premium. C) is a riskless investment. D) Both A and B are true. E) Both A and C are true. A) will not be undertaken by a risk-averse investor. B) is a risky investment with a zero risk premium. C) is a riskless investment. D) Both A and B are true. E) Both A and C are true.

U = E(r) - (A/2)sS1U1P12S1S1P0, where A = 4.0. $\begin{array}{lll} \underline{\text { Investment }} & \underline{\text { Expected Return E(r) }} &\underline{ \text { Standard Deviation }} \\ 1 & 0.12 & 0.3 \\ 2 & 0.15 & 0.5 \\ 3 & 0.21 & 0.16 \\ 4 & 0.24 & 0.21 \end{array}$ -Based on the utility function above,which investment would you select?

A) 1 B) 2 C) 3 D) 4 E) cannot tell from the information given A) 1 B) 2 C) 3 D) 4 E) cannot tell from the information given

Assume an investor with the following utility function: U = E(r) - 3/2(sS1U1P12S1S1P0). -To maximize her expected utility,which one of the following investment alternatives would she choose?

A) A portfolio that pays 10 percent with a 60 percent probability or 5 percent with 40 percent probability. B) A portfolio that pays 10 percent with 40 percent probability or 5 percent with a 60 percent probability. C) A portfolio that pays 12 percent with 60 percent probability or 5 percent with 40 percent probability. D) A portfolio that pays 12 percent with 40 percent probability or 5 percent with 60 percent probability. E) none of the above. A) A portfolio that pays 10 percent with a 60 percent probability or 5 percent with 40 percent probability. B) A portfolio that pays 10 percent with 40 percent probability or 5 percent with a 60 percent probability. C) A portfolio that pays 12 percent with 60 percent probability or 5 percent with 40 percent probability. D) A portfolio that pays 12 percent with 40 percent probability or 5 percent with 60 percent probability. E) none of the above.

Exam 6: Risk Aversion and Capital Allocation to Risky Assets

What is a fair game? Explain how the term relates to a risk-averse investor's attitude toward speculation and risk and how the utility function reflects this attitude.

(Essay)

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Question 41

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. -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 0.08?

(Multiple Choice)

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Question 42

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 risk-free asset and the risky asset,respectively,to form a portfolio with a standard deviation of 0.20?

(Multiple Choice)

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Question 43

What would be the dollar value of your positions in X,Y,and the T-bills,respectively,if you decide to hold a portfolio that has an expected outcome of $1,120?

(Multiple Choice)

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Question 44

The Capital Market Line I.is a special case of the Capital Allocation Line. II.represents the opportunity set of a passive investment strategy. III.has the one-month T-Bill rate as its intercept. IV.uses a broad index of common stocks as its risky portfolio.

(Multiple Choice)

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Question 45

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. -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 0.08?

(Multiple Choice)

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Question 46

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 equation of Bo's Capital Allocation Line?

(Multiple Choice)

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Question 47

Discuss the characteristics of indifference curves,and the theoretical value of these curves in the portfolio building process.

(Essay)

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Question 48

Which investment would you select if you were risk neutral?

(Multiple Choice)

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Question 49

The variable (A)in the utility function represents the:

(Multiple Choice)

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Question 50

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 standard deviation of Bo's complete portfolio?

(Multiple Choice)

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Question 51

A fair game

(Multiple Choice)

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Question 52

U = E(r) - (A/2)s², where A = 4.0. 1 0.12 0.3 2 0.15 0.5 3 0.21 0.16 4 0.24 0.21 -Based on the utility function above,which investment would you select?

(Multiple Choice)

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Question 53

Which of the following statements regarding the Capital Allocation Line (CAL)is false?

(Multiple Choice)

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Question 54

To build an indifference curve we can first find the utility of a portfolio with 100% in the risk-free asset,then

(Multiple Choice)

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Question 55

Assume an investor with the following utility function: U = E(r) - 3/2(s²). -To maximize her expected utility,she would choose the asset with an expected rate of return of _ and a standard deviation of __,respectively.

(Multiple Choice)

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Question 56

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.

(Multiple Choice)

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Question 57

The presence of risk means that

(Multiple Choice)

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Question 58

Assume an investor with the following utility function: U = E(r) - 3/2(s²). -To maximize her expected utility,which one of the following investment alternatives would she choose?

(Multiple Choice)

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Question 59

An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent.His portfolio's expected return and standard deviation are and ,respectively.

(Multiple Choice)

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Question 60

Showing 41 - 60 of 73

Exam 6: Risk Aversion and Capital Allocation to Risky Assets

What is a fair game? Explain how the term relates to a risk-averse investor's attitude toward speculation and risk and how the utility function reflects this attitude.

What would be the dollar value of your positions in X,Y,and the T-bills,respectively,if you decide to hold a portfolio that has an expected outcome of $1,120?

The Capital Market Line I.is a special case of the Capital Allocation Line. II.represents the opportunity set of a passive investment strategy. III.has the one-month T-Bill rate as its intercept. IV.uses a broad index of common stocks as its risky portfolio.

Discuss the characteristics of indifference curves,and the theoretical value of these curves in the portfolio building process.

Which investment would you select if you were risk neutral?

The variable (A)in the utility function represents the:

A fair game

U = E(r) - (A/2)s2, where A = 4.0. 1 0.12 0.3 2 0.15 0.5 3 0.21 0.16 4 0.24 0.21 -Based on the utility function above,which investment would you select?

Which of the following statements regarding the Capital Allocation Line (CAL)is false?

To build an indifference curve we can first find the utility of a portfolio with 100% in the risk-free asset,then

Assume an investor with the following utility function: U = E(r) - 3/2(s2). -To maximize her expected utility,she would choose the asset with an expected rate of return of _______ and a standard deviation of ________,respectively.

The presence of risk means that

Assume an investor with the following utility function: U = E(r) - 3/2(s2). -To maximize her expected utility,which one of the following investment alternatives would she choose?

An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent.His portfolio's expected return and standard deviation are __________ and __________,respectively.

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

U = E(r) - (A/2)s², where A = 4.0. 1 0.12 0.3 2 0.15 0.5 3 0.21 0.16 4 0.24 0.21 -Based on the utility function above,which investment would you select?

Assume an investor with the following utility function: U = E(r) - 3/2(s²). -To maximize her expected utility,she would choose the asset with an expected rate of return of _ and a standard deviation of __,respectively.

Assume an investor with the following utility function: U = E(r) - 3/2(s²). -To maximize her expected utility,which one of the following investment alternatives would she choose?

An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent.His portfolio's expected return and standard deviation are and ,respectively.