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

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%. -The Sharpe ratio for the value stock portfolio is closest to:

Use the following information to answer the question(s)below. The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%. -The beta for Wyatt Oil is closest to:

Use the table for the question(s)below. Consider the following covariances between securities: -The variance on a portfolio that is made up of a $6000 investments in Duke Energy and a $4000 investment in Wal-Mart stock is closest to:

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

Use the following information to answer the question(s)below. The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%. -The expected return on the portfolio of the three stocks is closest to:

Use the following information to answer the question(s)below. The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%. -The beta for the portfolio of the three stocks is closest to:

Use the table for the question(s)below. Consider the following covariances between securities: -Which of the following statements is FALSE?

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. -You currently own $100,000 worth of Wal-Mart stock.Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%.The market portfolio has an expected return of 12% and a volatility of 16%.The risk-free rate is 5%.Assuming the CAPM assumptions hold,what alternative investment has the highest possible expected return while having the same volatility as Wal-Mart? What is the expected return of this 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. -Assuming that Tom wants to maintain the current volatility of his portfolio,then the maximum expected return that Tom could achieve by investing in the market portfolio and risk-free investment is closest to:

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%. -The volatility on the market portfolio (which is a 50-50 combination of the value and growth portfolios)is closest to:

Use the table for the question(s)below. Consider the following three individuals portfolios consisting of investments in four stocks: -Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%.Luther Industries has a volatility of 24% and a correlation with the market of .5.If you assume that the CAPM assumptions hold,then what is the expected return on Luther stock?

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

Use the following information to answer the question(s)below. Your investment portfolio consists of $10,000 worth of Google stock.Suppose that the risk-free rate is 4%,Google stock has an expected return of 14% and a volatility of 35%,and the market portfolio has an expected return of 12% and a volatility of 18%.Assume that the CAPM assumptions hold. -The volatility of the alternative investment that has the lowest possible volatility while having the same expected return as Google is closest to:

Use the following information to answer the question(s)below. The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%. -The beta for Taggart Transcontinental is closest to:

Use the following information to answer the question(s)below. The volatility of the market portfolio is 10%,the expected return on the market is 12%,and the risk-free rate of interest is 4%. -The expected return for Rearden Metal is closest to:

Use the information for the question(s)below. Suppose you have $10,000 in cash and you decide to borrow another $10,000 at a 6% interest rate to invest in the stock market.You invest the entire $20,000 in an exchange traded fund (ETF)with a 12% expected return and a 20% volatility. -The volatility of your investment is closest to:

Use the information for the question(s)below. Suppose that you currently have $250,000 invested in a portfolio with an expected return of 12% and a volatility of 10%.The efficient (tangent)portfolio has an expected return of 17% and a volatility of 12%.The risk-free rate of interest is 5%. -Suppose that you want to maximize your expected return without increasing your risk.How can you achieve this goal? Without increasing your risk,what is the maximum expected return you can expect?

Use the table for the question(s)below. Consider the following expected returns,volatilities,and correlations: -The expected return of a portfolio that is equally invested in Duke Energy and Microsoft is closest to: