Question 1

Which of the following statements is false?

Accepted Answer

A)  While the sign of the correlation is easy to interpret, its magnitude is not. 
B)  Independent risks are uncorrelated. 
C)  When the covariance equals 0, the returns are uncorrelated. 
D)  To find the risk of a portfolio, we need to know more than the risk and return of the component stocks; we need to know the degree to which the stocks' returns move together. 
A)  While the sign of the correlation is easy to interpret, its magnitude is not. 
B)  Independent risks are uncorrelated. 
C)  When the covariance equals 0, the returns are uncorrelated. 
D)  To find the risk of a portfolio, we need to know more than the risk and return of the component stocks; we need to know the degree to which the stocks' returns move together.

Question 2

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 beta for Sisyphean's new project is closest to:

Accepted Answer

A)  1.25 
B)  1.40 
C)  0.70 
D)  1.75 
A)  1.25 
B)  1.40 
C)  0.70 
D)  1.75

Question 3

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 value of your portfolio over the year is:

Accepted Answer

A)  $21,000 
B)  $20,000 
C)  $20,700 
D)  $21,500 
A)  $21,000 
B)  $20,000 
C)  $20,700 
D)  $21,500

Question 4

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

Accepted Answer

A)  0.05 
B)  0.06 
C)  0.10 
D)  0.71 
A)  0.05 
B)  0.06 
C)  0.10 
D)  0.71

Question 5

Which of the following statements is false?

Accepted Answer

A)  The variance of a portfolio is equal to the weighted average correlation of each stock within the portfolio. 
B)  The variance of a portfolio is equal to the sum of the covariances of the returns of all pairs of stocks in the portfolio multiplied by each of their portfolio weights. 
C)  The variance of a portfolio is equal to the weighted average covariances of each stock within the portfolio. 
D)  The volatility declines as the number of stocks in a portfolio grows. 
A)  The variance of a portfolio is equal to the weighted average correlation of each stock within the portfolio. 
B)  The variance of a portfolio is equal to the sum of the covariances of the returns of all pairs of stocks in the portfolio multiplied by each of their portfolio weights. 
C)  The variance of a portfolio is equal to the weighted average covariances of each stock within the portfolio. 
D)  The volatility declines as the number of stocks in a portfolio grows.

Question 6

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.
-Assuming that the EFT you invested in returns -10%,then the realized return on your investment is closest to:

Accepted Answer

A)  -20% 
B)  -10% 
C)  -24% 
D)  -26% 
A)  -20% 
B)  -10% 
C)  -24% 
D)  -26%

Question 7

Conservative investors will invest ________ amount,choosing a portfolio on the line near the risk-free investment.

Accepted Answer

A)  a large 
B)  a zero 
C)  a small 
D)  an indifferent 
A)  a large 
B)  a zero 
C)  a small 
D)  an indifferent

Question 8

In a competitive market,investments with ________ should have ________ expected return(s).

Accepted Answer

A)  different risk; the same 
B)  similar risk; different 
C)  different risk; different 
D)  similar risk; the same 
A)  different risk; the same 
B)  similar risk; different 
C)  different risk; different 
D)  similar risk; the same

Which of the following statements is false?

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 value of your portfolio over the year is:

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

Which of the following statements is false?

Conservative investors will invest ________ amount,choosing a portfolio on the line near the risk-free investment.

In a competitive market,investments with should have expected return(s).

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

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

Which of the following statements is false?

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 value of your portfolio over the year is:

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

Which of the following statements is false?

Conservative investors will invest ________ amount,choosing a portfolio on the line near the risk-free investment.

In a competitive market,investments with ________ should have ________ expected return(s).

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

In a competitive market,investments with should have expected return(s).