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

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%. -The Sharpe ratio for your portfolio is closest to:

Which of the following statements is false?

________ portfolio of risky securities must ________ the market portfolio.

Which of the following formulas is incorrect?

The amount of risk that will remain in a portfolio depends on the degree to which the stocks are exposed 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 expected return on your investment is closest to:

Which of the following statements is false?

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?

Correlation has ________ effect on the expected return of a portfolio.

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

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 $2,000 in Microsoft is closest to:

Consider a portfolio consisting of only Microsoft and Wal-Mart stock.Calculate the expected return on such a portfolio when the weight on Microsoft stock is 0%,25%,50%,75%,and 100%.

What are three main assumptions underlie the CAPM?

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

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

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 returns: -Calculate the variance on a portfolio that is made up of equal investments in Home Depot and IBM stock.

A portfolio weight is ________ of individual investment in the total investment portfolio.

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. -The weight on Ball Corporation in your portfolio is:

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: