Question 1

The riskiness of individual assets

Accepted Answer

A) should be considered for the asset in isolation. 
B) should be considered in the context of the effect on overall portfolio volatility. 
C) should be combined with the riskiness of other individual assets in the proportions these assets constitute the entire portfolio. 
D) B and C. 
E) none of the above. 
A) should be considered for the asset in isolation. 
B) should be considered in the context of the effect on overall portfolio volatility. 
C) should be combined with the riskiness of other individual assets in the proportions these assets constitute the entire portfolio. 
D) B and C. 
E) none of the above.

Question 2

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

Accepted Answer

The investor may combine a risk-free ass

Question 3

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

Accepted Answer

A) The investor's prior investing experience 
B) The investor's degree of financial security 
C) The investor's tendency to make risky or conservative choices 
D) The level of return the investor prefers 
E) The investor's feelings about loss 
A) The investor's prior investing experience 
B) The investor's degree of financial security 
C) The investor's tendency to make risky or conservative choices 
D) The level of return the investor prefers 
E) The investor's feelings about loss

Question 4

In the mean-standard deviation graph,which one of the following statements is true regarding the indifference curve of a risk-averse investor?

Accepted Answer

A) It is the locus of portfolios that have the same expected rates of return and different standard deviations. 
B) It is the locus of portfolios that have the same standard deviations and different rates of return. 
C) It is the locus of portfolios that offer the same utility according to returns and standard deviations. 
D) It connects portfolios that offer increasing utilities according to returns and standard deviations. 
E) none of the above. 
A) It is the locus of portfolios that have the same expected rates of return and different standard deviations. 
B) It is the locus of portfolios that have the same standard deviations and different rates of return. 
C) It is the locus of portfolios that offer the same utility according to returns and standard deviations. 
D) It connects portfolios that offer increasing utilities according to returns and standard deviations. 
E) none of the above.

Question 5

If you want to form a portfolio with an expected rate of return of 0.11,what percentages of your money must you invest in the T-bill and P,respectively?

Accepted Answer

A) 0.25; 0.75 
B) 0.19; 0.81 
C) 0.65; 0.35 
D) 0.50; 0.50 
E) cannot be determined 
A) 0.25; 0.75 
B) 0.19; 0.81 
C) 0.65; 0.35 
D) 0.50; 0.50 
E) cannot be determined

Question 6

The first major step in asset allocation is:

Accepted Answer

A) assessing risk tolerance. 
B) analyzing financial statements. 
C) estimating security betas. 
D) identifying market anomalies. 
E) none of the above. 
A) assessing risk tolerance. 
B) analyzing financial statements. 
C) estimating security betas. 
D) identifying market anomalies. 
E) none of the above.

Question 7

Asset allocation

Accepted Answer

A) may involve the decision as to the allocation between a risk-free asset and a risky asset. 
B) may involve the decision as to the allocation among different risky assets. 
C) may involve considerable security analysis. 
D) A and B. 
E) A and C. 
A) may involve the decision as to the allocation between a risk-free asset and a risky asset. 
B) may involve the decision as to the allocation among different risky assets. 
C) may involve considerable security analysis. 
D) A and B. 
E) A and C.

Question 8

In the mean-standard deviation graph,the line that connects the risk-free rate and the optimal risky portfolio,P,is called ______________.

Accepted Answer

A) the Security Market Line 
B) the Capital Allocation Line 
C) the Indifference Curve 
D) the investor's utility line 
E) none of the above 
A) the Security Market Line 
B) the Capital Allocation Line 
C) the Indifference Curve 
D) the investor's utility line 
E) none of the above

Question 9

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.
-The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

Accepted Answer

A) 0.325. 
B) 0.675. 
C) 0.912. 
D) 0.407. 
E) Cannot be determined. 
A) 0.325. 
B) 0.675. 
C) 0.912. 
D) 0.407. 
E) Cannot be determined.

Question 10

What are the proportions of Stocks A,B,and C,respectively in Bo's complete portfolio?

Accepted Answer

A) 40%, 25%, 35% 
B) 8%, 5%, 7% 
C) 32%, 20%, 28% 
D) 16%, 10%, 14% 
E) 20%,12.5%,17.5% 
A) 40%, 25%, 35% 
B) 8%, 5%, 7% 
C) 32%, 20%, 28% 
D) 16%, 10%, 14% 
E) 20%,12.5%,17.5%

Question 11

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.
-A portfolio that has an expected outcome of $114 is formed by

Accepted Answer

A) Investing $100 in the risky asset. 
B) Investing $80 in the risky asset and $20 in the risk-free asset. 
C) Borrowing $46 at the risk-free rate and investing the total amount ($146) in the risky asset. 
D) Investing $43 in the risky asset and $57 in the riskless asset. 
E) Such a portfolio cannot be formed. 
A) Investing $100 in the risky asset. 
B) Investing $80 in the risky asset and $20 in the risk-free asset. 
C) Borrowing $46 at the risk-free rate and investing the total amount ($146) in the risky asset. 
D) Investing $43 in the risky asset and $57 in the riskless asset. 
E) Such a portfolio cannot be formed.

Question 12

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15.The risk-free rate is 6 percent.An investor has the following utility function: U = E(r)- (A/2)s2.Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

Accepted Answer

A) 5 
B) 6 
C) 7 
D) 8 
E) none of the above 
A) 5 
B) 6 
C) 7 
D) 8 
E) none of the above

Question 13

An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 30 percent in a T-bill that pays 5 percent.His portfolio's expected return and standard deviation are __________ and __________,respectively.

Accepted Answer

A) 0.120; 0.14 
B) 0.087; 0.06 
C) 0.295; 0.12 
D) 0.087; 0.12 
E) none of the above 
A) 0.120; 0.14 
B) 0.087; 0.06 
C) 0.295; 0.12 
D) 0.087; 0.12 
E) none of the above

Exam 6: Risk Aversion and Capital Allocation to Risky Assets

The riskiness of individual assets

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?

In the mean-standard deviation graph,which one of the following statements is true regarding the indifference curve of a risk-averse investor?

If you want to form a portfolio with an expected rate of return of 0.11,what percentages of your money must you invest in the T-bill and P,respectively?

The first major step in asset allocation is:

Asset allocation

In the mean-standard deviation graph,the line that connects the risk-free rate and the optimal risky portfolio,P,is called ______________.

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. -The slope of the Capital Allocation Line formed with the risky asset and the risk-free asset is equal to

What are the proportions of Stocks A,B,and C,respectively in Bo's complete portfolio?

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. -A portfolio that has an expected outcome of $114 is formed by

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15.The risk-free rate is 6 percent.An investor has the following utility function: U = E(r)- (A/2)s2.Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 30 percent in a T-bill that pays 5 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

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15.The risk-free rate is 6 percent.An investor has the following utility function: U = E(r)- (A/2)s².Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

An investor invests 70 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 30 percent in a T-bill that pays 5 percent.His portfolio's expected return and standard deviation are and ,respectively.