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

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:

Which of the following statements is FALSE?

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

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

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:

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:

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:

Suppose that Google Stock has a beta of 1.06 and Boeing stock has a beta of 1.31.The beta on a portfolio that consists of 30% Google stock and 70% Boeing stock is closest to:

Which of the following statements is FALSE?

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:

Explain how having different interest rates for borrowing and lending affects the CAPM and the SML.

The beta for the market is closest to:

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:

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 expected return on the market portfolio (which is a 50-50 combination of the value and growth portfolios)is closest to:

Which of the following statements is FALSE?

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 Sharpe Ratio for the market portfolio is closest to:

Use the information for the question(s) below. Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%. Monsters Inc. has a 24% volatility and a correlation with the market of .60, while California Gold Mining has a 32% volatility and a correlation with the market of -.7. Assume the CAPM assumptions hold. -Monsters' beta with the market 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 Stock X and Stock Z stock is closest to:

Which of the following statements is FALSE?

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