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

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:

Which of the following equations is INCORRECT?

Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock. You receive an actual return of -8% for Merck and 12% for Home Depot. What is the actual return on your portfolio?

The beta for the market portfolio 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 expected return for Rearden Metal 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. -The expected return on the alternative investment having the highest possible expected return while having the same volatility as Google 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:

Use the information for the question(s) below. Tom's portfolio consists solely of an investment in Merck stock. Merck has an expected return of 13% and a volatility of 25%. The market portfolio has an expected return of 12% and a volatility of 18%. The risk-free rate is 4%. Assume that the CAPM assumptions hold in the market. -Assuming that Tom wants to maintain the current expected return on his portfolio, then the minimum volatility that Tom could achieve by investing in the market portfolio and risk-free investment is closest to:

Which of the following equations is INCORRECT?

Use the table for the question(s) below. Consider the following covariances between securities: -The variance on a portfolio that is made up of equal investments in Duke Energy and Microsoft stock is closest to:

Which of the following statements is FALSE?

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%. -The Sharpe ratio for your 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?

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -The expected return of a portfolio that is equally invested in Duke Energy and Microsoft is closest to:

Which of the following statements is FALSE?

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 volatility 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 covariances between securities: -The variance on a portfolio that is made up of a $6000 investments in Duke Energy and a $4000 investment in Wal-Mart stock is closest to:

Which of the following statements is FALSE?

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 Ball Corporation in your portfolio is: