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

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -Consider a portfolio consisting of only Microsoft and Wal-Mart stock.Calculate the volatility of such a portfolio when the weight on Microsoft stock is 0%,25%,50%,75%,and 100%.

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?

Which of the following statements is false?

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?

CAPM states that the investment's expected return should match the expected return of ________ portfolio with the same level of market risk.

Use the table for the question(s) below. Consider the following returns: -Calculate the correlation between Home Depot's and IBM's returns.

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 investment in Microsoft stock and a $4000 investment in Wal-Mart stock is closest to:

The risk of a portfolio depends on how each stock's ________ moves in relation to it.

A portfolio is efficient if and only if ________ of every available security equals its ________.

Which of the following statements is false?

Which of the following statements is false?

Use the table for the question(s) below. Consider the following returns: -The correlation between Lowes' and Home Depot's returns is closest to:

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

Which of the following statements is false?

The beta of a security captures the security's ________ to market risk.

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 of Abbott Labs in your portfolio after one year is closest to:

Which of the following statements is false?

The cost of capital of investment i is equal to the expected return of the best available portfolio in the market with the same sensitivity to

Which of the following statements is false?

If investors have homogeneous expectations,then each investor will identify ________ portfolio as having ________ Sharpe ratio in the economy.