Question 1

We can determine the appropriate risk premium for an investment from its ________ with the efficient portfolio.

Accepted Answer

A)  beta coefficient 
B)  required return 
C)  risk level 
D)  expected return 
A)  beta coefficient 
B)  required return 
C)  risk level 
D)  expected return

Question 2

To identify the efficient portfolio we must know ________,________,and ________ between investments.

Accepted Answer

A)  risk level; required return; profitability 
B)  value of risk free; required return; correlations 
C)  expected return; volatilities; correlations 
D)  systematic risk; nonsystematic risk and required return 
A)  risk level; required return; profitability 
B)  value of risk free; required return; correlations 
C)  expected return; volatilities; correlations 
D)  systematic risk; nonsystematic risk and required return

Question 3

A hyperbola curve represents the set of portfolios that we can create using ________ weights.

Accepted Answer

A)  risk 
B)  return 
C)  arbitrary 
D)  cost 
A)  risk 
B)  return 
C)  arbitrary 
D)  cost

Question 4

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 Abbott Labs in your portfolio is:

Accepted Answer

A)  50% 
B)  40% 
C)  30% 
D)  20% 
A)  50% 
B)  40% 
C)  30% 
D)  20%

Question 5

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 Lowes in your portfolio is:

Accepted Answer

A)  40% 
B)  20% 
C)  50% 
D)  30% 
A)  40% 
B)  20% 
C)  50% 
D)  30%

Question 6

Use the table for the question(s) below.
Consider the following covariances between securities:
  
-What is the variance on a portfolio that has $3,000 invested in Duke Energy,$4,000 invested in Microsoft,and $3,000 invested in Wal-Mart stock?

Accepted Answer

Variance o

Question 7

Which of the following statements is false?

Accepted Answer

A)  The Sharpe ratio measures the ratio of volatility-to-reward provided by a portfolio. 
B)  Borrowing money to invest in stocks is referred to as buying stocks on margin. 
C)  The Sharpe ratio is the number of standard deviations the portfolio's return would have to fall to under-perform the risk-free investment. 
D)  The slope of the line through a given portfolio is often referred to as the Sharpe ratio of the portfolio. 
A)  The Sharpe ratio measures the ratio of volatility-to-reward provided by a portfolio. 
B)  Borrowing money to invest in stocks is referred to as buying stocks on margin. 
C)  The Sharpe ratio is the number of standard deviations the portfolio's return would have to fall to under-perform the risk-free investment. 
D)  The slope of the line through a given portfolio is often referred to as the Sharpe ratio of the portfolio.

Question 8

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

Accepted Answer

The answer of Use the table for the question(s) below.
Consider...

Question 9

Which of the following statements is false?

Accepted Answer

A)  An investor's preferences will determine only how much to invest in the tangent or efficient portfolio versus the risk-free investment. 
B)  Conservative investors will invest a small amount in the tangent or efficient portfolio, choosing a portfolio on the line near the risk-free investment. 
C)  Only aggressive investors will choose to hold the portfolio of risky assets, the tangent or efficient portfolio. 
D)  Aggressive investors will invest more in the tangent portfolio, choosing a portfolio that is near the tangent portfolio or even beyond it by buying stocks on margin. 
A)  An investor's preferences will determine only how much to invest in the tangent or efficient portfolio versus the risk-free investment. 
B)  Conservative investors will invest a small amount in the tangent or efficient portfolio, choosing a portfolio on the line near the risk-free investment. 
C)  Only aggressive investors will choose to hold the portfolio of risky assets, the tangent or efficient portfolio. 
D)  Aggressive investors will invest more in the tangent portfolio, choosing a portfolio that is near the tangent portfolio or even beyond it by buying stocks on margin.

Question 10

The efficient portfolio offers ________ Sharpe ratio and therefore ________ risk-return tradeoff available.

Accepted Answer

A)  the highest; the best 
B)  the lowest; the best 
C)  the highest; the lowest 
D)  the lowest; the worst 
A)  the highest; the best 
B)  the lowest; the best 
C)  the highest; the lowest 
D)  the lowest; the worst

Question 11

Which of the following statements is false?

Accepted Answer

A)  Graphically, the efficient portfolios are those on the northeast edge of the set of possible portfolios, an area which we call the efficient frontier. 
B)  To arrive at the best possible set of risk and return opportunities, we should keep adding stocks until all investment opportunities are represented. 
C)  We say a portfolio is short for those stocks that have negative portfolio weights. 
D)  Adding new investment opportunities allows for greater diversification and improves the efficient frontier. 
A)  Graphically, the efficient portfolios are those on the northeast edge of the set of possible portfolios, an area which we call the efficient frontier. 
B)  To arrive at the best possible set of risk and return opportunities, we should keep adding stocks until all investment opportunities are represented. 
C)  We say a portfolio is short for those stocks that have negative portfolio weights. 
D)  Adding new investment opportunities allows for greater diversification and improves the efficient frontier.

Question 12

Which of the following equations is incorrect?

Accepted Answer

A)  Cov(Ri,Rj) =   Σ(Ri - Ri)(Rj - Rj) 
B)  Var(Rp) = x12Var(R1) + x22Var(R2) + 2X1X2Cov(R1,R2) 
C)  Corr(Ri,Rj) =   
D)  Cov(Ri,Rj) = E[(Ri - E[Ri])(Rj - E[Rj])] 
A)  Cov(Ri,Rj) =   Σ(Ri - Ri)(Rj - Rj) 
B)  Var(Rp) = x12Var(R1) + x22Var(R2) + 2X1X2Cov(R1,R2) 
C)  Corr(Ri,Rj) =   
D)  Cov(Ri,Rj) = E[(Ri - E[Ri])(Rj - E[Rj])]

Question 13

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

Accepted Answer

A)  35% 
B)  10% 
C)  13% 
D)  42% 
A)  35% 
B)  10% 
C)  13% 
D)  42%

Question 14

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?

Accepted Answer

By investing in a combination of the ris

Question 15

the CAPM allows us to identify the efficient portfolio of risky assets without having any knowledge of the ________ of each security.

Accepted Answer

A)  systematic risk 
B)  common risk 
C)  diversifiable risk 
D)  expected return 
A)  systematic risk 
B)  common risk 
C)  diversifiable risk 
D)  expected return

Question 16

The relationship between risk and return for individual securities becomes evident only when we measure ________.

Accepted Answer

A)  market return rather than total return 
B)  market risk rather than total risk 
C)  expected return rather than required return 
D)  risk level rather than return 
A)  market return rather than total return 
B)  market risk rather than total risk 
C)  expected return rather than required return 
D)  risk level rather than return

Question 17

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%.
-You want to maximize your expected return without increasing your risk.Without increasing your volatility beyond its current 10%,the maximum expected return you could earn is closest to:

Accepted Answer

A)  12.0% 
B)  12.5% 
C)  13.4% 
D)  15.0% 
A)  12.0% 
B)  12.5% 
C)  13.4% 
D)  15.0%

Question 18

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

Accepted Answer

A)  3% 
B)  13% 
C)  16% 
D)  18% 
A)  3% 
B)  13% 
C)  16% 
D)  18%

Question 19

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 expected return on the precious metals fund is closest to:

Accepted Answer

A)  -3% 
B)  4% 
C)  1% 
D)  10% 
A)  -3% 
B)  4% 
C)  1% 
D)  10%

Question 20

Which of the following statements is false?

Accepted Answer

A)  The volatility declines as the number of stocks in a portfolio grows. 
B)  An equally weighted portfolio is a portfolio in which the same amount is invested in each stock. 
C)  As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks. 
D)  When combining stocks into a portfolio that puts positive weight on each stock, unless all of the stocks are uncorrelated with the portfolio, the risk of the portfolio will be lower than the weighted average volatility of the individual stocks. 
A)  The volatility declines as the number of stocks in a portfolio grows. 
B)  An equally weighted portfolio is a portfolio in which the same amount is invested in each stock. 
C)  As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks. 
D)  When combining stocks into a portfolio that puts positive weight on each stock, unless all of the stocks are uncorrelated with the portfolio, the risk of the portfolio will be lower than the weighted average volatility of the individual stocks.

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

We can determine the appropriate risk premium for an investment from its ________ with the efficient portfolio.

To identify the efficient portfolio we must know ________,________,and ________ between investments.

A hyperbola curve represents the set of portfolios that we can create using ________ weights.

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 Abbott Labs in your portfolio is:

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 Lowes in your portfolio is:

Use the table for the question(s) below. Consider the following covariances between securities: -What is the variance on a portfolio that has $3,000 invested in Duke Energy,$4,000 invested in Microsoft,and $3,000 invested in Wal-Mart stock?

Which of the following statements is false?

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

Which of the following statements is false?

The efficient portfolio offers ________ Sharpe ratio and therefore ________ risk-return tradeoff available.

Which of the following statements is false?

Which of the following equations is incorrect?

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

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?

the CAPM allows us to identify the efficient portfolio of risky assets without having any knowledge of the ________ of each security.

The relationship between risk and return for individual securities becomes evident only when we measure ________.

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 Corporation

Introduction to Financial Statement Analysis

Arbitrage and Financial Decision Making

The Time Value of Money

Interest Rates

Valuing Bonds

Valuing Stocks

Investment Decision Rules

Fundamentals of Capital Budgeting

Capital Markets and the Pricing of Risk

Estimating the Cost of Capital

Investor Behaviour and Capital Market Efficiency

Financial Options

Option Valuation

Real Options

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress, managerial Incentives, and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modelling: a Case Study

The Mechanics of Raising Equity Capital

Debt Financing

Leasing

Working Capital Management

Short-Term Financial Planning

Mergers and Acquisitions

Corporate Governance

Risk Management

International Corporate Finance

Filters

To identify the efficient portfolio we must know ,,and between investments.

The efficient portfolio offers Sharpe ratio and therefore risk-return tradeoff available.