\(\begin{array}{c} \begin{array}{c} \underline{\text {State of the economy}}\\ \text {Boom}\\ \text {Normal}\\ \text {Recession} \end{array} \begin{array}{c} \underline{\text {Probability}}\\ .4\\ .3 \\ .3 \end{array} \begin{array}{c} \underline{\text {Stock R}}\\ 32 \% \\ 10 \% \\ -9 \% \end{array} \end{array}\) -What is the variance of Stock R?

A) 0.0328 B) 0.0416 C) 0.0292 D) 0.0375 E) 0.0253 A) 0.0328 B) 0.0416 C) 0.0292 D) 0.0375 E) 0.0253

\(\begin{array}{c} \begin{array}{c} \underline{\text {State of the economy}}\\ \text {Boom}\\ \text {Normal}\\ \text {Recession} \end{array} \begin{array}{c} \underline{\text {Probability}}\\ .3\\ .4 \\ .3 \end{array} \begin{array}{c} \underline{\text {Stock F}}\\ 65 \% \\ 14 \% \\ -50 \% \end{array} \end{array}\) -What is the variance of Stock F?

A) 0.1994 B) 0.1741 C) 0.2217 D) 0.1823 E) 0.2074 A) 0.1994 B) 0.1741 C) 0.2217 D) 0.1823 E) 0.2074

\(\begin{array}{c} \begin{array}{c} \underline{\text {State of the economy}}\\ \text {Boom}\\ \text {Recession} \end{array} \begin{array}{c} \underline{\text {Probability}}\\ .3\\ .7\\ \end{array} \begin{array}{c} \underline{\text {Stock Q}}\\ 14 \% \\ 8\% \\ \end{array} \end{array}\) -What is the expected return of a portfolio 60 percent invested in Stock P and the remainder in Stock Q?

A) 14.30% B) 13.19% C) 15.17% D) 12.56% E) 10.66% A) 14.30% B) 13.19% C) 15.17% D) 12.56% E) 10.66%

Exam 2: Diversification and Risky Asset Allocation

Consider the stock returns of Sun Life, Research in Motion, and the Bank of Montreal. You would expect the greatest correlation between the stocks of:

Free

(Multiple Choice)

4.8/5

(39)

Question 1

Correct Answer:

Verified

A stock is projected to return 15% during economic booms, -4% during recessions and 8% otherwise. If reports indicate the probability of a boom has decreased what would happen to the stock's expected return?

Free

(Multiple Choice)

4.9/5

(43)

Question 2

Correct Answer:

Verified

All possible risk-return combinations available from portfolios consisting of different group of assets are the __________.

Free

(Multiple Choice)

4.7/5

(41)

Question 3

Correct Answer:

Verified

Stock G has a standard deviation of 49 percent, and Stock H has a standard deviation of 56 percent. The covariance between the two assets is 0.046. What is the variance of a portfolio with 40 percent of its assets invested in Stock G?

(Multiple Choice)

4.8/5

(46)

Question 4

The correlation between Stock A and Stock B is 0.40. The correlation between Stock A and Stock C is 0.20, and the correlation between Stock B and Stock C is 0.25. All else the same, which of the following portfolios will have the least risk?

(Multiple Choice)

4.8/5

(35)

Question 5

Boom Normal Recession .4 .3 .3 32\% 10\% -9\% -What is the variance of Stock R?

(Multiple Choice)

4.9/5

(24)

Question 6

All else the same, a correlation of __________ will result in the least diversification benefits.

(Multiple Choice)

4.9/5

(27)

Question 7

All else constant, the risk premium on a security will decrease when the I) security's expected return increases II) security's expected return decreases III) risk-free rate increases IV) risk-free rate decreases

(Multiple Choice)

4.8/5

(40)

Question 8

A(n) __________ portfolio offers the lowest risk for a given level of return or it generates the highest possible return for a given level of risk

(Multiple Choice)

4.7/5

(40)

Question 9

The reason why a fully-diversified portfolio does not have zero risk is that some risk is:

(Multiple Choice)

4.9/5

(45)

Question 10

In a two-stock portfolio, stocks with a correlation coefficient of __________ will results in a smallest possible standard deviation for the portfolio.

(Multiple Choice)

4.8/5

(31)

Question 11

Which of the following assets cannot lie on the Markowitz efficient frontier?

(Multiple Choice)

4.8/5

(35)

Question 12

Boom Normal Recession .3 .4 .3 65\% 14\% -50\% -What is the variance of Stock F?

(Multiple Choice)

5.0/5

(41)

Question 13

The reduction in risk realized when a portfolio is invested in a variety of assets is called

(Multiple Choice)

4.9/5

(40)

Question 14

The market consists of two stocks. Stock F has an expected return of 9 percent and a standard deviation of 32 percent. Stock G has an expected return of 13 percent and a standard deviation of 50 percent. The correlation between the two stocks is -0.10. The efficient frontier is:

(Multiple Choice)

4.9/5

(37)

Question 15

The greater the variance of a portfolio,

(Multiple Choice)

4.8/5

(46)

Question 16

What is the expected return of a stock with a risk premium of 7.6 percent if the risk-free rate is 4.8 percent?

(Multiple Choice)

4.9/5

(47)

Question 17

Boom Recession .3 .7 14\% 8\% -What is the expected return of a portfolio 60 percent invested in Stock P and the remainder in Stock Q?

(Multiple Choice)

4.9/5

(37)

Question 18

You own Stock A with a standard deviation of 48% and Stock B with a standard deviation of 35%. As you add more Stock A to your portfolio, the standard deviation of your portfolio will:

(Multiple Choice)

5.0/5

(42)

Question 19

Which of the following shows how much different an outcome may be from what is anticipated on the basis of a central tendency measure?

(Multiple Choice)

4.9/5

(35)

Question 20

Showing 1 - 20 of 96

Consider the stock returns of Sun Life, Research in Motion, and the Bank of Montreal. You would expect the greatest correlation between the stocks of:

A stock is projected to return 15% during economic booms, -4% during recessions and 8% otherwise. If reports indicate the probability of a boom has decreased what would happen to the stock's expected return?

All possible risk-return combinations available from portfolios consisting of different group of assets are the __________.

Stock G has a standard deviation of 49 percent, and Stock H has a standard deviation of 56 percent. The covariance between the two assets is 0.046. What is the variance of a portfolio with 40 percent of its assets invested in Stock G?

The correlation between Stock A and Stock B is 0.40. The correlation between Stock A and Stock C is 0.20, and the correlation between Stock B and Stock C is 0.25. All else the same, which of the following portfolios will have the least risk?

Boom Normal Recession .4 .3 .3 32\% 10\% -9\% -What is the variance of Stock R?

All else the same, a correlation of __________ will result in the least diversification benefits.

All else constant, the risk premium on a security will decrease when the I) security's expected return increases II) security's expected return decreases III) risk-free rate increases IV) risk-free rate decreases

A(n) __________ portfolio offers the lowest risk for a given level of return or it generates the highest possible return for a given level of risk

The reason why a fully-diversified portfolio does not have zero risk is that some risk is:

In a two-stock portfolio, stocks with a correlation coefficient of __________ will results in a smallest possible standard deviation for the portfolio.

Which of the following assets cannot lie on the Markowitz efficient frontier?

Boom Normal Recession .3 .4 .3 65\% 14\% -50\% -What is the variance of Stock F?

The reduction in risk realized when a portfolio is invested in a variety of assets is called

The market consists of two stocks. Stock F has an expected return of 9 percent and a standard deviation of 32 percent. Stock G has an expected return of 13 percent and a standard deviation of 50 percent. The correlation between the two stocks is -0.10. The efficient frontier is:

The greater the variance of a portfolio,

What is the expected return of a stock with a risk premium of 7.6 percent if the risk-free rate is 4.8 percent?

Boom Recession .3 .7 14\% 8\% -What is the expected return of a portfolio 60 percent invested in Stock P and the remainder in Stock Q?

You own Stock A with a standard deviation of 48% and Stock B with a standard deviation of 35%. As you add more Stock A to your portfolio, the standard deviation of your portfolio will:

Which of the following shows how much different an outcome may be from what is anticipated on the basis of a central tendency measure?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behaviour and Market Efficiency

Behavioural Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk and Security Management

Performance Evaluation and Risk Management

Options

Option Valuation

Futures Contracts

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds and Mortgaged-Backed Securities

International Portfolio Investment

Filters