Question 1

Which one of the following correlation coefficients can provide the greatest diversification benefit?

Accepted Answer

A)  -1.0 
B)  -0.5 
C)  0.0 
D)  0.5 
E)  1.0 
A)  -1.0 
B)  -0.5 
C)  0.0 
D)  0.5 
E)  1.0

Question 2

Stock A has a standard deviation of 12 percent per year and stock B has a standard deviation of 16 percent per year. The correlation between stock A and stock B is .37. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 35 percent. What is your portfolio variance?

Accepted Answer

A)  .01245 
B)  .01314 
C)  .01329 
D)  .01437 
E)  .01470 
A)  .01245 
B)  .01314 
C)  .01329 
D)  .01437 
E)  .01470

Question 3

Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation?

Accepted Answer

A)  minimum variance portfolio 
B)  Markowitz efficient frontier 
C)  correlated market frontier 
D)  asset allocation relationship 
E)  diversified portfolio line 
A)  minimum variance portfolio 
B)  Markowitz efficient frontier 
C)  correlated market frontier 
D)  asset allocation relationship 
E)  diversified portfolio line

Question 4

What is the expected return on this stock given the following information?

Accepted Answer

A)  6.40 percent 
B)  6.57 percent 
C)  8.99 percent 
D)  13.40 percent 
E)  14.25 percent 
A)  6.40 percent 
B)  6.57 percent 
C)  8.99 percent 
D)  13.40 percent 
E)  14.25 percent

Question 5

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?

Accepted Answer

A)  minimum variance set 
B)  financial frontier 
C)  efficient portfolio 
D)  allocated set 
E)  investment opportunity set 
A)  minimum variance set 
B)  financial frontier 
C)  efficient portfolio 
D)  allocated set 
E)  investment opportunity set

Question 6

A portfolio consists of the following securities. What is the portfolio weight of stock X?

Accepted Answer

A)  .183 
B)  .202 
C)  .219 
D)  .246 
E)  .285 
A)  .183 
B)  .202 
C)  .219 
D)  .246 
E)  .285

Question 7

What is the standard deviation of a security which has the following expected returns?

Accepted Answer

A)  7.48 percent 
B)  7.61 percent 
C)  7.67 percent 
D)  7.82 percent 
E)  7.91 percent 
A)  7.48 percent 
B)  7.61 percent 
C)  7.67 percent 
D)  7.82 percent 
E)  7.91 percent

Question 8

Roger has a portfolio comprised of $8,000 of stock A and $12,000 of stock B. What is the standard deviation of this portfolio?

Accepted Answer

A)  4.67 percent 
B)  9.97 percent 
C)  7.23 percent 
D)  8.83 percent 
E)  10.42 percent 
A)  4.67 percent 
B)  9.97 percent 
C)  7.23 percent 
D)  8.83 percent 
E)  10.42 percent

Question 9

Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio?

Accepted Answer

A)  number of economic states 
B)  various expected returns caused by changing economic states 
C)  market risk 
D)  diversifiable risk 
E)  non-diversifiable risk 
A)  number of economic states 
B)  various expected returns caused by changing economic states 
C)  market risk 
D)  diversifiable risk 
E)  non-diversifiable risk

Question 10

You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B. What is the variance of this portfolio?

Accepted Answer

A)  190.9 
B)  203.8 
C)  268.0 
D)  290.8 
E)  315.6 
A)  190.9 
B)  203.8 
C)  268.0 
D)  290.8 
E)  315.6

Question 11

What is the expected return on this stock given the following information?

Accepted Answer

A)  9.36 percent 
B)  9.74 percent 
C)  10.70 percent 
D)  11.78 percent 
E)  12.05 percent 
A)  9.36 percent 
B)  9.74 percent 
C)  10.70 percent 
D)  11.78 percent 
E)  12.05 percent

Question 12

You have a portfolio which is comprised of 20 percent of stock A and 80 percent of stock B. What is the portfolio standard deviation?

Accepted Answer

A)  4.00 percent 
B)  5.18 percent 
C)  6.07 percent 
D)  6.82 percent 
E)  7.47 percent 
A)  4.00 percent 
B)  5.18 percent 
C)  6.07 percent 
D)  6.82 percent 
E)  7.47 percent

Question 13

What is the expected return on this stock given the following information?

Accepted Answer

A)  -2.05 percent 
B)  -1.08 percent 
C)  0.47 percent 
D)  1.22 percent 
E)  1.43 percent 
A)  -2.05 percent 
B)  -1.08 percent 
C)  0.47 percent 
D)  1.22 percent 
E)  1.43 percent

Question 14

Which one of the following statements about efficient portfolios is correct?

Accepted Answer

A)  Any efficient portfolio will lie below the minimum variance portfolio when the expected portfolio return is plotted against the portfolio standard deviation. 
B)  An efficient portfolio will have the lowest standard deviation of any portfolio consisting of the same two securities. 
C)  There are multiple efficient portfolios that can be constructed using the same two securities. 
D)  Any portfolio mix consisting of only two securities will be an efficient portfolio. 
E)  There is only one efficient portfolio that can be constructed using two securities. 
A)  Any efficient portfolio will lie below the minimum variance portfolio when the expected portfolio return is plotted against the portfolio standard deviation. 
B)  An efficient portfolio will have the lowest standard deviation of any portfolio consisting of the same two securities. 
C)  There are multiple efficient portfolios that can be constructed using the same two securities. 
D)  Any portfolio mix consisting of only two securities will be an efficient portfolio. 
E)  There is only one efficient portfolio that can be constructed using two securities.

Question 15

You own a portfolio comprised of 4 stocks and the economy has 3 possible states. Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent, regardless of the economic state. Given this, what must be value of the portfolio's variance be?

Accepted Answer

A)  negative, but not -1 
B)  -1.0 
C)  0.0 
D)  1.0 
E)  positive, but not +1 
A)  negative, but not -1 
B)  -1.0 
C)  0.0 
D)  1.0 
E)  positive, but not +1

Question 16

What is the expected return on this stock given the following information?

Accepted Answer

A)  -10.07 percent 
B)  -9.69 percent 
C)  -9.30 percent 
D)  -8.70 percent 
E)  -8.22 percent 
A)  -10.07 percent 
B)  -9.69 percent 
C)  -9.30 percent 
D)  -8.70 percent 
E)  -8.22 percent

Question 17

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

Accepted Answer

A)  -1.0 
B)  -0.5 
C)  0.0 
D)  0.5 
E)  1.0 
A)  -1.0 
B)  -0.5 
C)  0.0 
D)  0.5 
E)  1.0

Question 18

What is the variance of the returns on a security given the following information?

Accepted Answer

A)  28.18 
B)  46.23 
C)  54.38 
D)  62.87 
E)  77.31 
A)  28.18 
B)  46.23 
C)  54.38 
D)  62.87 
E)  77.31

Question 19

You are advising several individual investors who are interested in investing in portfolios comprised of both stocks and bonds. In preparation for meeting with these various investors, you plot the investment opportunity set for stocks and bonds. Given this information, why might you advise some of the investors to invest in a portfolio other than the minimum variance portfolio?

Accepted Answer

There are several reasons why I might ad

Question 20

You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owning that stock?

Accepted Answer

A)  weighted average return given the multiple states of the economy 
B)  rate of return for a given economic state 
C)  variance of the returns given the multiple states of the economy 
D)  correlation between the returns give the various states of the economy 
E)  correlation of the weighted average return as compared to the market 
A)  weighted average return given the multiple states of the economy 
B)  rate of return for a given economic state 
C)  variance of the returns given the multiple states of the economy 
D)  correlation between the returns give the various states of the economy 
E)  correlation of the weighted average return as compared to the market

Which one of the following correlation coefficients can provide the greatest diversification benefit?

Stock A has a standard deviation of 12 percent per year and stock B has a standard deviation of 16 percent per year. The correlation between stock A and stock B is .37. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 35 percent. What is your portfolio variance?

Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation?

What is the expected return on this stock given the following information?

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?

A portfolio consists of the following securities. What is the portfolio weight of stock X?

What is the standard deviation of a security which has the following expected returns?

Roger has a portfolio comprised of $8,000 of stock A and $12,000 of stock B. What is the standard deviation of this portfolio?

Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio?

You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B. What is the variance of this portfolio?

What is the expected return on this stock given the following information?

You have a portfolio which is comprised of 20 percent of stock A and 80 percent of stock B. What is the portfolio standard deviation?

What is the expected return on this stock given the following information?

Which one of the following statements about efficient portfolios is correct?

You own a portfolio comprised of 4 stocks and the economy has 3 possible states. Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent, regardless of the economic state. Given this, what must be value of the portfolio's variance be?

What is the expected return on this stock given the following information?

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

What is the variance of the returns on a security given the following information?

You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owning that stock?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters

Exam 11: Diversification and Risky Asset Allocation

Which one of the following correlation coefficients can provide the greatest diversification benefit?

Stock A has a standard deviation of 12 percent per year and stock B has a standard deviation of 16 percent per year. The correlation between stock A and stock B is .37. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 35 percent. What is your portfolio variance?

Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation?

What is the expected return on this stock given the following information?

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?

A portfolio consists of the following securities. What is the portfolio weight of stock X?

What is the standard deviation of a security which has the following expected returns?

Roger has a portfolio comprised of $8,000 of stock A and $12,000 of stock B. What is the standard deviation of this portfolio?

Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio?

You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B. What is the variance of this portfolio?

What is the expected return on this stock given the following information?

You have a portfolio which is comprised of 20 percent of stock A and 80 percent of stock B. What is the portfolio standard deviation?

What is the expected return on this stock given the following information?

Which one of the following statements about efficient portfolios is correct?

You own a portfolio comprised of 4 stocks and the economy has 3 possible states. Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent, regardless of the economic state. Given this, what must be value of the portfolio's variance be?

What is the expected return on this stock given the following information?

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

What is the variance of the returns on a security given the following information?

You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owning that stock?

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return, Risk, and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate Bonds

Government Bonds

Mortgage-Backed Securities

Filters