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

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:

The beta for the risk free investment is closest to:

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

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 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 you invest $15,000 in Merck stock and $25,000 in Home Depot stock. You expect a return of 16% for Merck and 12% for Home Depot. What is the expected return on your portfolio?

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 amount that Tom should invest in the market portfolio to minimize his volatility 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:

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

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

The Sharpe Ratio for Rearden Metal 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 Wyatt Oil 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. -California Gold Mining's beta with the market 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 volatility of your of your investment is closest to:

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?

The beta for the portfolio of the three stocks 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. 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 Sharpe ratio for the value stock portfolio is closest to:

The expected return on the portfolio of the three stocks is closest to: