Exam 7: Optimal Risky Portfolios

Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% The coefficient of correlation between A and B is

The separation property refers to the conclusion that

Given an optimal risky portfolio with expected return of 16%, standard deviation of 20%, and a risk-free rate of 4%, what is the slope of the best feasible CAL?

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated. The global-minimum variance portfolio has a standard deviation that is always

Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10\% 8\% 2 0.20 13\% 7\% 3 0.20 12\% 6\% 4 0.30 14\% 9\% 5 0.20 15\% 8\% The expected rate of return and standard deviation of the global minimum variance portfolio, G, are __________ and __________, respectively.

Security X has expected return of 7% and standard deviation of 14%. Security Y has expected return of 11% and standard deviation of 22%. If the two securities have a correlation coefficient of 0.45, what is their Covariance?

The expected return of a portfolio of risky securities

Security X has expected return of 14% and standard deviation of 22%. Security Y has expected return of 16% and standard deviation of 28%. If the two securities have a correlation coefficient of 0.8, what is their Covariance?

Portfolio theory as described by Markowitz is most concerned with

Security M has expected return of 17% and standard deviation of 32%. Security S has expected return of 13% and standard deviation of 19%. If the two securities have a correlation coefficient of 0.78, what is their Covariance?

The capital allocation line provided by a risk-free security and N risky securities is

Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.10 10\% 8\% 2 0.20 13\% 7\% 3 0.20 12\% 6\% 4 0.30 14\% 9\% 5 0.20 15\% 8\% The expected rates of return of stocks A and B are _____ and _____, respectively.

Which statement about portfolio diversification is correct?

The efficient frontier of risky assets is

For a two-stock portfolio, what would be the preferred correlation coefficient between the two stocks?

Consider the following probability distribution for stocks A and B: State Probability Return on Stock A Return on Stock B 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% If you invest 35% of your money in A and 65% in B, what would be your portfolio's expected rate of return and standard deviation?

The risk that can be diversified away is

Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The weights of A and B in the global minimum variance portfolio are _____ and _____, respectively.

The standard deviation of a two-asset portfolio is a linear function of the assets' weights when

Which of the following statement(s) is(are) true regarding the variance of a portfolio of two risky securities? I. The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. II. There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. III. The degree to which the portfolio variance is reduced depends on the degree of correlation between Securities.