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

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 $6,000 investment in Microsoft stock and a $4,000 investment in Wal-Mart stock is closest to:

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 table for the question(s) below. Consider the following returns: -The variance on a portfolio that is made up of equal investments in Lowes and Home Depot stock is closest to:

Which of the following equations is incorrect?

Which of the following statements is false?

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

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

Which of the following statements is false?

What is the efficient frontier and how does it change when more stocks are used to construct portfolios?

Both conservative and aggressive investors will choose to hold the same portfolio of risky assets,

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

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

Consider an equally weighted portfolio that contains 100 stocks.If the average volatility of these stocks is 50% and the average correlation between the stocks is .7,then the volatility of this equally weighted portfolio is closest to:

Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock.You expect a return of 16% for Merck and 12% for Home Depot.What is the expected return on your portfolio?

Which of the following statements is false?

The capital market line (CML)represents ________ expected return available for ________ level of volatility.

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 $2,000 in Microsoft is closest to:

Aggressive investors will invest more,choosing a portfolio that is near ________ or even beyond it by buying stocks on margin.

Which of the following statements is false?

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%.