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

A) 15.3% B) 10.9% C) 17.1% D) 14.4% E) 15.8% A) 15.3% B) 10.9% C) 17.1% D) 14.4% E) 15.8%

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

A) 5.88% B) 1.46% C) 4.27% D) 2.63% E) 3.30% A) 5.88% B) 1.46% C) 4.27% D) 2.63% E) 3.30%

Consider the following correlation coefficient for stocks M, N, P and Q. Which portfolio will have the least diversification benefit? \[\begin{array} { | l | r | r | r | r | } \hline & \text { Stock M } & \text { Stock N } & \text { Stock P } & \text { Stock Q } \\ \hline \text { Stock M } & 1.000 & & & \\ \hline \text { Stock N } & 0.911 & 1.000 & & \\ \hline \text { Stock P } & 0.543 & - 0.123 & 1.000 & \\ \hline \text { Stock Q } & - 0.321 & 0.411 & 0.000 & 1.000 \\ \hline \end{array}\]

A) M and N B) N and P C) P and Q D) M and P E) N and Q A) M and N B) N and P C) P and Q D) M and P E) N and Q

Exam 2: Diversification and Risky Asset Allocation

What is the importance of the minimum variance portfolio? All else the same, what effect does the correlation between two risky assets have on the minimum variance portfolio?

(Essay)

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Question 81

What is the possible correlation between a Bombardier stock with a standard deviation of 50 percent and a Treasury bill issued by Government of Canada?

(Multiple Choice)

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Question 82

In the analysis of the Markowitz efficient frontier, which of the following information is not needed?

(Multiple Choice)

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Question 83

Boom Recession .3 .7 14\% 8\% -What is the expected return of Stock P?

(Multiple Choice)

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Question 84

As the number of stocks in a portfolio increases, the portfolio standard deviation

(Multiple Choice)

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Question 85

Stock S has an expected return of 8 percent and a standard deviation of 20 percent. Stock B has an expected return of 3 percent and a standard deviation of 12 percent. If the correlation of the two stocks is 0.15, what is the expected return of the minimum variance portfolio?

(Multiple Choice)

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Question 86

What is the risk premium of a stock that has an expected return of 14.2 percent if the risk-free rate is 5.7 percent?

(Multiple Choice)

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Question 87

If the future return on a security is known with certainty, then the risk premium on that security should be equal to

(Multiple Choice)

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Question 88

Stock J has a standard deviation of 67 percent, and Stock K has a standard deviation of 51 percent. The correlation between the two stocks is -0.10. What is the variance of a portfolio of the two assets with 35 percent invested in Stock J?

(Multiple Choice)

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Question 89

Why are some risks diversifiable and others nondiversifiable? Give an example of each.

(Essay)

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Question 90

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

(Multiple Choice)

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Question 91

Stock ABC has an expected return of 12% and a standard deviation of 48%. Which of the following stocks dominate Stock ABC?

(Multiple Choice)

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Question 92

Why is Markowitz portfolio analysis most commonly used to make asset allocation decisions?

(Essay)

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Question 93

Consider the following correlation coefficient for stocks M, N, P and Q. Which portfolio will have the least diversification benefit? Stock M Stock N Stock P Stock Q Stock M 1.000 Stock N 0.911 1.000 Stock P 0.543 -0.123 1.000 Stock Q -0.321 0.411 0.000 1.000

(Multiple Choice)

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Question 94

To lie on the Markowitz efficient frontier, an asset must have a expected return than any other asset with the same standard deviation. The asset must also have a standard deviation than any other asset with the same expected return.

(Multiple Choice)

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Question 95

The manner in which an investor spreads his portfolio across a variety of securities is called

(Multiple Choice)

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Question 96

What is the importance of the minimum variance portfolio? All else the same, what effect does the correlation between two risky assets have on the minimum variance portfolio?

What is the possible correlation between a Bombardier stock with a standard deviation of 50 percent and a Treasury bill issued by Government of Canada?

In the analysis of the Markowitz efficient frontier, which of the following information is not needed?

Boom Recession .3 .7 14\% 8\% -What is the expected return of Stock P?

As the number of stocks in a portfolio increases, the portfolio standard deviation

Stock S has an expected return of 8 percent and a standard deviation of 20 percent. Stock B has an expected return of 3 percent and a standard deviation of 12 percent. If the correlation of the two stocks is 0.15, what is the expected return of the minimum variance portfolio?

What is the risk premium of a stock that has an expected return of 14.2 percent if the risk-free rate is 5.7 percent?

If the future return on a security is known with certainty, then the risk premium on that security should be equal to

Stock J has a standard deviation of 67 percent, and Stock K has a standard deviation of 51 percent. The correlation between the two stocks is -0.10. What is the variance of a portfolio of the two assets with 35 percent invested in Stock J?

Why are some risks diversifiable and others nondiversifiable? Give an example of each.

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

Stock ABC has an expected return of 12% and a standard deviation of 48%. Which of the following stocks dominate Stock ABC?

Why is Markowitz portfolio analysis most commonly used to make asset allocation decisions?

Consider the following correlation coefficient for stocks M, N, P and Q. Which portfolio will have the least diversification benefit? Stock M Stock N Stock P Stock Q Stock M 1.000 Stock N 0.911 1.000 Stock P 0.543 -0.123 1.000 Stock Q -0.321 0.411 0.000 1.000

To lie on the Markowitz efficient frontier, an asset must have a expected return than any other asset with the same standard deviation. The asset must also have a standard deviation than any other asset with the same expected return.

The manner in which an investor spreads his portfolio across a variety of securities is called

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

Exam 2: Diversification and Risky Asset Allocation

What is the importance of the minimum variance portfolio? All else the same, what effect does the correlation between two risky assets have on the minimum variance portfolio?

What is the possible correlation between a Bombardier stock with a standard deviation of 50 percent and a Treasury bill issued by Government of Canada?

In the analysis of the Markowitz efficient frontier, which of the following information is not needed?

Boom Recession .3 .7 14\% 8\% -What is the expected return of Stock P?

As the number of stocks in a portfolio increases, the portfolio standard deviation

Stock S has an expected return of 8 percent and a standard deviation of 20 percent. Stock B has an expected return of 3 percent and a standard deviation of 12 percent. If the correlation of the two stocks is 0.15, what is the expected return of the minimum variance portfolio?

What is the risk premium of a stock that has an expected return of 14.2 percent if the risk-free rate is 5.7 percent?

If the future return on a security is known with certainty, then the risk premium on that security should be equal to

Stock J has a standard deviation of 67 percent, and Stock K has a standard deviation of 51 percent. The correlation between the two stocks is -0.10. What is the variance of a portfolio of the two assets with 35 percent invested in Stock J?

Why are some risks diversifiable and others nondiversifiable? Give an example of each.

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

Stock ABC has an expected return of 12% and a standard deviation of 48%. Which of the following stocks dominate Stock ABC?

Why is Markowitz portfolio analysis most commonly used to make asset allocation decisions?

Consider the following correlation coefficient for stocks M, N, P and Q. Which portfolio will have the least diversification benefit? Stock M Stock N Stock P Stock Q Stock M 1.000 Stock N 0.911 1.000 Stock P 0.543 -0.123 1.000 Stock Q -0.321 0.411 0.000 1.000

To lie on the Markowitz efficient frontier, an asset must have a __________ expected return than any other asset with the same standard deviation. The asset must also have a __________ standard deviation than any other asset with the same expected return.

The manner in which an investor spreads his portfolio across a variety of securities is called

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

To lie on the Markowitz efficient frontier, an asset must have a expected return than any other asset with the same standard deviation. The asset must also have a standard deviation than any other asset with the same expected return.