Question 1

An efficient portfolio is a portfolio that does which one of the following?

Accepted Answer

A)  offers the highest return for the lowest possible cost 
B)  provides an evenly weighted portfolio of diverse assets 
C)  eliminates all risk while providing an expected positive rate of return 
D)  lies on the vertical axis when graphing expected returns against standard deviation 
E)  offers the highest return for a given level of risk 
A)  offers the highest return for the lowest possible cost 
B)  provides an evenly weighted portfolio of diverse assets 
C)  eliminates all risk while providing an expected positive rate of return 
D)  lies on the vertical axis when graphing expected returns against standard deviation 
E)  offers the highest return for a given level of risk

Question 2

What is the standard deviation of the returns on this stock?

Accepted Answer

A)  3.33 percent 
B)  4.62 percent 
C)  5.01 percent 
D)  5.77 percent 
E)  6.06 percent 
A)  3.33 percent 
B)  4.62 percent 
C)  5.01 percent 
D)  5.77 percent 
E)  6.06 percent

Question 3

A group of stocks and bonds held by an investor is called which one of the following?

Accepted Answer

A)  weights 
B)  grouping 
C)  basket 
D)  portfolio 
E)  bundle 
A)  weights 
B)  grouping 
C)  basket 
D)  portfolio 
E)  bundle

Question 4

You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock

Accepted Answer

A)  The weights will be the probability of occurrence for each economic state. 
B)  Each stock will have a weight of 20 percent for a total of 100 percent. 
C)  The weights will decline steadily from Stock A to Stock E 
D)  The weights will be based on the amount invested in each stock as a percentage of the total amount invested. 
E)  The weights will be based on a combination of the dollar amounts invested as well as the economic probabilities. 
A)  The weights will be the probability of occurrence for each economic state. 
B)  Each stock will have a weight of 20 percent for a total of 100 percent. 
C)  The weights will decline steadily from Stock A to Stock E 
D)  The weights will be based on the amount invested in each stock as a percentage of the total amount invested. 
E)  The weights will be based on a combination of the dollar amounts invested as well as the economic probabilities.

Question 5

There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent. What is the risk-free rate if the risk premium on the stock is 8.60 percent?

Accepted Answer

A)  4.20 percent 
B)  4.80 percent 
C)  5.20 percent 
D)  5.40 percent 
E)  5.80 percent 
A)  4.20 percent 
B)  4.80 percent 
C)  5.20 percent 
D)  5.40 percent 
E)  5.80 percent

Question 6

Travis has a portfolio consisting of two stocks, A and B, which is valued at $42,900. Stock A is worth $23,900. What is the portfolio weight of stock B?

Accepted Answer

A)  .428 
B)  .443 
C)  .449 
D)  .452 
E)  .454 
A)  .428 
B)  .443 
C)  .449 
D)  .452 
E)  .454

Question 7

Correlation is the:

Accepted Answer

A)  squared measure of a security's total risk. 
B)  extent to which the returns on two assets move together. 
C)  measurement of the systematic risk contained in an asset. 
D)  daily return on an asset compared to its previous daily return. 
E)  spreading of an investment across a number of assets. 
A)  squared measure of a security's total risk. 
B)  extent to which the returns on two assets move together. 
C)  measurement of the systematic risk contained in an asset. 
D)  daily return on an asset compared to its previous daily return. 
E)  spreading of an investment across a number of assets.

Question 8

If two assets have a zero correlation, their returns will:

Accepted Answer

A)  always move in the same direction by the same amount. 
B)  always move in the same direction but not necessarily by the same amount. 
C)  move randomly and independently of each other. 
D)  always move in opposite directions but not necessarily by the same amount. 
E)  always move in opposite directions by the same amount. 
A)  always move in the same direction by the same amount. 
B)  always move in the same direction but not necessarily by the same amount. 
C)  move randomly and independently of each other. 
D)  always move in opposite directions but not necessarily by the same amount. 
E)  always move in opposite directions by the same amount.

Question 9

You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B. What is the expected rate of return on this portfolio?

Accepted Answer

A)  9.46 percent 
B)  9.88 percent 
C)  10.03 percent 
D)  11.79 percent 
E)  12.40 percent 
A)  9.46 percent 
B)  9.88 percent 
C)  10.03 percent 
D)  11.79 percent 
E)  12.40 percent

Question 10

An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy. The overall expected return on the security is 8.88 percent. Given there are only two states of the economy, what is the probability that the economy will boom?

Accepted Answer

A)  28 percent 
B)  33 percent 
C)  36 percent 
D)  41 percent 
E)  45 percent 
A)  28 percent 
B)  33 percent 
C)  36 percent 
D)  41 percent 
E)  45 percent

Question 11

Which one of the following statements is correct?

Accepted Answer

A)  A portfolio variance is a weighted average of the variances of the individual securities which comprise the portfolio. 
B)  A portfolio variance is dependent upon the portfolio's asset allocation. 
C)  A portfolio variance is unaffected by the correlations between the individual securities held in the portfolio. 
D)  The portfolio variance must be greater than the lowest variance of any of the securities held in the portfolio. 
E)  The portfolio variance must be less than the lowest variance of any of the securities held in the portfolio. 
A)  A portfolio variance is a weighted average of the variances of the individual securities which comprise the portfolio. 
B)  A portfolio variance is dependent upon the portfolio's asset allocation. 
C)  A portfolio variance is unaffected by the correlations between the individual securities held in the portfolio. 
D)  The portfolio variance must be greater than the lowest variance of any of the securities held in the portfolio. 
E)  The portfolio variance must be less than the lowest variance of any of the securities held in the portfolio.

Question 12

The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information?

Accepted Answer

A)  5.88 percent 
B)  5.95 percent 
C)  6.10 percent 
D)  6.23 percent 
E)  6.27 percent 
A)  5.88 percent 
B)  5.95 percent 
C)  6.10 percent 
D)  6.23 percent 
E)  6.27 percent

Question 13

Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 21 percent per year. The correlation between stock A and stock B is .32. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 60 percent. What is your portfolio standard deviation?

Accepted Answer

A)  14.87 percent 
B)  15.59 percent 
C)  16.91 percent 
D)  17.45 percent 
E)  18.03 percent 
A)  14.87 percent 
B)  15.59 percent 
C)  16.91 percent 
D)  17.45 percent 
E)  18.03 percent

Question 14

Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $89,100. Stock X is worth $57,800. What is the portfolio weight of stock Y?

Accepted Answer

A)  .351 
B)  .390 
C)  .523 
D)  .610 
E)  .649 
A)  .351 
B)  .390 
C)  .523 
D)  .610 
E)  .649

Question 15

You combine a set of assets using different weights such that you produce the following results.   Which one of these portfolios CANNOT be a Markowitz efficient portfolio?

Accepted Answer

A)  A 
B)  B 
C)  C 
D)  D 
E)  E 
A)  A 
B)  B 
C)  C 
D)  D 
E)  E

Question 16

Terry has a portfolio comprised of two individual securities. Which one of the following computations that he might do is NOT a weighted average?

Accepted Answer

A)  correlation between the securities 
B)  individual security expected return 
C)  portfolio expected return 
D)  portfolio variance 
E)  portfolio beta 
A)  correlation between the securities 
B)  individual security expected return 
C)  portfolio expected return 
D)  portfolio variance 
E)  portfolio beta

Question 17

Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.

Accepted Answer

Adding foreign securities into a domesti

Question 18

You have a portfolio which is comprised of 65 percent of stock A and 35 percent of stock B. What is the expected rate of return on this portfolio?

Accepted Answer

A)  5.45 percent 
B)  6.62 percent 
C)  7.14 percent 
D)  7.60 percent 
E)  8.22 percent 
A)  5.45 percent 
B)  6.62 percent 
C)  7.14 percent 
D)  7.60 percent 
E)  8.22 percent

Question 19

You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B. What is the variance of this portfolio?

Accepted Answer

A)  57.86 
B)  61.05 
C)  66.83 
D)  70.14 
E)  75.93 
A)  57.86 
B)  61.05 
C)  66.83 
D)  70.14 
E)  75.93

Question 20

You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a normal economy. If the probability of a booming economy decreases, your expected return will:

Accepted Answer

A)  decrease. 
B)  either remain constant or decrease. 
C)  remain constant. 
D)  increase. 
E)  either remain constant or increase. 
A)  decrease. 
B)  either remain constant or decrease. 
C)  remain constant. 
D)  increase. 
E)  either remain constant or increase.

An efficient portfolio is a portfolio that does which one of the following?

What is the standard deviation of the returns on this stock?

A group of stocks and bonds held by an investor is called which one of the following?

You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock

There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent. What is the risk-free rate if the risk premium on the stock is 8.60 percent?

Travis has a portfolio consisting of two stocks, A and B, which is valued at $42,900. Stock A is worth $23,900. What is the portfolio weight of stock B?

Correlation is the:

If two assets have a zero correlation, their returns will:

You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B. What is the expected rate of return on this portfolio?

An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy. The overall expected return on the security is 8.88 percent. Given there are only two states of the economy, what is the probability that the economy will boom?

Which one of the following statements is correct?

The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information?

Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $89,100. Stock X is worth $57,800. What is the portfolio weight of stock Y?

You combine a set of assets using different weights such that you produce the following results. Which one of these portfolios CANNOT be a Markowitz efficient portfolio?

Terry has a portfolio comprised of two individual securities. Which one of the following computations that he might do is NOT a weighted average?

Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.

You have a portfolio which is comprised of 65 percent of stock A and 35 percent of stock B. What is the expected rate of return on this portfolio?

You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B. What is the variance of this portfolio?

You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a normal economy. If the probability of a booming economy decreases, your expected return will:

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

An efficient portfolio is a portfolio that does which one of the following?

What is the standard deviation of the returns on this stock?

A group of stocks and bonds held by an investor is called which one of the following?

You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock

There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent. What is the risk-free rate if the risk premium on the stock is 8.60 percent?

Travis has a portfolio consisting of two stocks, A and B, which is valued at $42,900. Stock A is worth $23,900. What is the portfolio weight of stock B?

Correlation is the:

If two assets have a zero correlation, their returns will:

You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B. What is the expected rate of return on this portfolio?

An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy. The overall expected return on the security is 8.88 percent. Given there are only two states of the economy, what is the probability that the economy will boom?

Which one of the following statements is correct?

The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information?

Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $89,100. Stock X is worth $57,800. What is the portfolio weight of stock Y?

You combine a set of assets using different weights such that you produce the following results. Which one of these portfolios CANNOT be a Markowitz efficient portfolio?

Terry has a portfolio comprised of two individual securities. Which one of the following computations that he might do is NOT a weighted average?

Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.

You have a portfolio which is comprised of 65 percent of stock A and 35 percent of stock B. What is the expected rate of return on this portfolio?

You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B. What is the variance of this portfolio?

You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a normal economy. If the probability of a booming economy decreases, your expected return will:

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