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

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 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:

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

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

Use the table for the question(s) below. Consider the following covariances between securities: -What is the variance on a portfolio that has $2000 invested in Duke Energy, $3000 invested in Microsoft, and $5000 invested in Wal-Mart stock?

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

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

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 on the portfolio of the three stocks 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. -Suppose that California Gold Mining's expected return is 2%. Then California Gold Mining's alpha 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 maximum expected return that Tom could achieve by investing in the market portfolio and risk-free investment 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 Peter's Portfolio is closest to:

You currently own $100,000 worth of Wal-Mart stock. Suppose that Wal-Mart has an expected return of 14% and a volatility of 23%. The market portfolio has an expected return of 12% and a volatility of 16%. The risk-free rate is 5%. Assuming the CAPM assumptions hold, what alternative investment has the lowest possible volatility while having the same expected return as Wal-Mart? What is the volatility of this portfolio?

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 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:

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

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%. -Which of the following statements is FALSE?

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 expected return for Wyatt Oil is closest to: