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

Use the following information to answer the question(s) below. Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio): growth stocks and value stocks. Assume that these two portfolios are equal in size (market value), the correlation of their returns is equal to 0.6, and the portfolios have the following characteristics: The risk free rate is 3.5%. -The Sharpe ratio for the market (which is a 50-50 combination of the value and growth portfolios)portfolio is closest to:

Use the table for the question(s) below. Consider the following three individuals portfolios consisting of investments in four stocks: -The beta on Paul's Portfolio is closest to:

The beta for the portfolio of the three stocks is closest to:

Use the table for the question(s) below. Consider the following three individuals portfolios consisting of investments in four stocks: -Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then required return on Peter's portfolio is closest to:

Which of the following statements is FALSE?

The beta for the risk free investment is closest to:

Which of the following statements is FALSE?

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 return on your portfolio over the year is:

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?

Which of the following equations is INCORRECT?

Use the following information to answer the question(s) below. The volatility of the market portfolio is 10%, the expected return on the market is 12%, and the risk-free rate of interest is 4%. -The beta for Wyatt Oil is closest to:

The expected return for Wyatt Oil is closest 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 volatility of your of your investment is closest 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. -Assume that the EFT you invested in returns -10%,then the realized return on your investment is closest to:

Suppose you have $10,000 in cash to invest.You decide to sell short $5,000 worth of Kinston stock and invest the proceeds from your short sale,plus your $10,000 into one-year U.S.treasury bills earning 5%.At the end of the year,you decide to liquidate your portfolio.Kinston Industries has the following realized returns: The return on your portfolio is closest to:

Use the information for the question(s) below. You are presently invested in the Luther Fund, a broad based mutual fund that invest 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. -Will adding the precious metals fund improve your portfolio?

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?

California Gold Mining's required return is closest to:

The expected return on the portfolio of the three stocks is closest to: