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

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:

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 weight on Ball Corporation 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?

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 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 Lowes in your portfolio is:

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 required return is closest to:

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:

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 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. -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 value of your portfolio over the year is:

Which of the following statements is FALSE?

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?

Explain how having different interest rates for borrowing and lending affects the CAPM and the SML.

Suppose that Google Stock has a beta of 1.06 and Boeing stock has a beta of 1.31. If the risk-free interest rate is 4% and the expected return from the market portfolio is 12%, then the expected return on a portfolio that consists of 30% Google stock and 70% Boeing stock is closest to:

Which of the following statements is FALSE?

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

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 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?