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 Z's returns is closest to:

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. -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:

Which of the following statements is FALSE?

Consider a portfolio consisting of only Microsoft and Wal-Mart stock. Calculate the expected return on such a portfolio when the weight on Microsoft stock is 0%, 25%, 50%, 75%, and 100%

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?

Use the table for the question(s) below. Consider the following returns: -Calculate the correlation between Stock Y's and Stock Z's returns .

Which of the following statements is FALSE?

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 required return for Sisyphean's new project is closest to:

Use the table for the question(s) below. Consider the following covariances between securities: -Which of the following statements is FALSE?

Use the table for the question(s) below. Consider the following expected returns, volatilities, and correlations: -Consider a portfolio consisting of only Duke Energy and Microsoft. The percentage of your investment (portfolio weight) that you would place in Duke Energy stock to achieve a risk-free investment would be closest to:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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 highest possible expected return while having the same volatility as Google?

Use the table for the question(s) below. Consider the following covariances between securities: -Consider an equally weighted portfolio that contains five stocks. If the average volatility of these stocks is 40% and the average correlation between the stocks is .5, then the volatility of this equally weighted portfolio 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 beta for the market is closest to:

The beta for the risk free investment 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 Wyatt Oil 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 Y 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 volatility of his portfolio, then the amount that Tom should invest in the market portfolio to maximize his expected return is closest to: