Exam 11: Optimal Portfolio Choice and the Capital Asset Pricing Model

Use the information for the question(s)below. Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%.Monsters Inc.has a 24% volatility and a correlation with the market of .60,while California Gold Mining has a 32% volatility and a correlation with the market of -.7.Assume the CAPM assumptions hold. -Suppose that Monsters' expected return is 12%.Then Monsters' alpha is closest to:

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following returns: -The Correlation between Stock X's and Stock Y's returns is closest to:

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -Which of the following statements is FALSE?

Use the information for the question(s)below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share. -Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -The expected return of a portfolio that consists of a long position of $10,000 in Wal-Mart and a short position of $2000 in Microsoft is closest to:

Use the table for the question(s)below. Consider the following three individuals portfolios consisting of investments in four stocks: -How is the optimal portfolio choice affected if there are different rates for borrowers and savers?

Use the table for the question(s)below. Consider the following covariances between securities: -What is the variance on a portfolio that has $2000 invested in Duke Energy,$3000 invested in Microsoft,and $5000 invested in Wal-Mart stock?

Use the information for the question(s)below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share. -Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock.You receive an actual return of -8% for Merck and 12% for Home Depot.What is the actual return on your portfolio?

Use the information for the question(s)below. Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market. -Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -What is the efficient frontier and how does it change when more stocks are used to construct portfolios?

Use the table for the question(s)below. Consider the following returns: -Calculate the correlation between Stock Y's and Stock Z's returns .

Use the following information to answer the question(s)below. Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks.Assume that these two portfolios are equal in size (market value),the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk free rate is 3.5%. -Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following covariances between securities: -Suppose you have $10,000 in cash to invest.You decide to sell short $5000 worth of Kinston stock and invest the proceeds from your short sale,plus your $10,000 into one-year U.S.treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns: The return on your portfolio is closest to:

Use the information for the question(s)below. Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market. -Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following covariances between securities: -Consider an equally weighted portfolio that contains 20 stocks.If the average volatility of these stocks is 35% and the average correlation between the stocks is .4,then the volatility of this equally weighted portfolio is closest to:

Use the information for the question(s)below. Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%.Monsters Inc.has a 24% volatility and a correlation with the market of .60,while California Gold Mining has a 32% volatility and a correlation with the market of -.7.Assume the CAPM assumptions hold. -Suppose that California Gold Mining's expected return is 2%.Then California Gold Mining's alpha is closest to:

Use the information for the question(s)below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share. -Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The weight on Ball Corporation in your portfolio after one year is closest to:

Use the information for the question(s)below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes (LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share. -Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The return on your portfolio over the year is:

Use the table for the question(s)below. Consider the following three individuals portfolios consisting of investments in four stocks: -The beta on Paul's Portfolio is closest to: