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

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

Use the table for the question(s) below. Consider the following covariances between securities: -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 the efficient portfolio is closest to:

Use the table for the question(s) below. Consider the following returns: -The Volatility on Stock X's returns 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. -The expected return on the precious metals fund 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. -The expected return on your of your investment is closest to:

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 returns: -Calculate the variance on a portfolio that is made up of equal investments in Stock Y and Stock Z stock .

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 equations is INCORRECT?

Suppose that the risk-free rate is 5% and the market portfolio has an expected return of 13% with a volatility of 18%. Luther Industries has a volatility of 24% and a correlation with the market of .5. If you assume that the CAPM assumptions hold, then what is the expected return on Luther stock?

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 Abbott Labs in your portfolio after one year 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%. -Which of the following statements is FALSE?