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

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 Taggart Transcontinental 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:

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

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 Rearden Metal is closest to:

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 $6000 investments in Microsoft and a $4000 investment in Wal-Mart stock is closest to:

Use the following information to answer the question(s) below. Your investment portfolio consists of $10,000 worth of Google stock. Suppose that the risk-free rate is 4%, Google stock has an expected return of 14% and a volatility of 35%, and the market portfolio has an expected return of 12% and a volatility of 18%. Assume that the CAPM assumptions hold. -What alternative investment has the lowest possible volatility while having the same expected return as Google?

Which of the following equations is INCORRECT?

Use the table for the question(s) below. Consider the following covariances between securities: -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:

Use the table for the question(s) below. Consider the following covariances between securities: -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 weight on Ball Corporation in your portfolio after one year is closest to:

Which of the following statements is FALSE?

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' required return is closest to:

Which of the following statements is FALSE?

Use the table for the question(s) below. Consider the following covariances between securities: -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?

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. -California Gold Mining's required return is closest to:

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -The volatility of a portfolio that is consists of a long position of $10000 in Wal-Mart and a short position of $2000 in Microsoft 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 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: