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

Use the information for the question(s)below. You are presently invested in the Luther Fund,a broad based mutual fund that invests in stocks and other securities.The Luther Fund has an expected return of 14% and a volatility of 20%.Risk-free Treasury bills are currently offering returns of 4%.You are considering adding a precious metals fund to your current portfolio.The metals fund has an expected return of 10%,a volatility of 30%,and a correlation of -.20 with the Luther Fund. -The beta of the precious metals fund with the Luther Fund Is closest to:

Use the table for the question(s)below. Consider the following covariances between securities: -What is the variance on a portfolio that has $3000 invested in Duke Energy,$4000 invested in Microsoft,and $3000 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. -Which of the following statements is FALSE?

Use the table for the question(s)below. Consider the following returns: -The Volatility on Stock Z's returns is closest to:

Use the table for the question(s)below. Consider the following returns: -The Volatility on Stock X's returns is closest to:

Use the table for the question(s)below. Consider the following three individuals portfolios consisting of investments in four stocks: -Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then required return on Peter's Portfolio is closest to:

Use the following information to answer the question(s)below. Luther Industries has 25 million shares outstanding trading at $18 per share.In addition,Luther has $150 million in outstanding debt.Suppose Luther's equity cost of capital is 13%,its debt cost of capital is 7%,and the corporate tax rate is 40%. -Which of the following statements is FALSE?

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 market (which is a 50-50 combination of the value and growth portfolios)portfolio is closest to:

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

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 information for the question(s)below. Sisyphean industries is seeking to raise capital from a large group of investors to fund a new project.Suppose that the efficient portfolio has an expected return of 14% and a volatility of 20%.Sisyphean's new project is expected to have a volatility of 40% and a 70% correlation with the efficient portfolio.The risk-free rate is 4%. -The required return for Sisyphean's new project 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%. -Suppose that Google stock has a beta of 1.06 and Boeing stock has a beta of 1.31.If the risk-free interest rate is 4% and the expected return from the market portfolio is 12%,then the expected return on a portfolio that consists of 30% Google stock and 70% Boeing stock is closest to:

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

Use the table for the question(s)below. Consider the following returns: -The variance on a portfolio that is made up of equal investments in Stock X and Stock Y is closest to: