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: -The expected return of a portfolio that is consists of a long position of $10000 in Wal-Mart and a short position of $2000 in Microsoft 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 equations is INCORRECT?

Which of the following statements is FALSE?

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:

Suppose that Google Stock has a beta of 1.06 and Boeing stock has a beta of 1.31. The beta on a portfolio that consists of 30% Google stock and 70% Boeing stock is closest to:

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 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 Lowes in your portfolio after one year is closest to:

Use the table for the question(s)below. Consider the following covariances between securities: -The variance on a portfolio that is made up of a $6000 investments in Duke Energy and a $4000 investment in Wal-Mart stock is closest to:

Which of the following statements is FALSE?

Suppose you have $10,000 in cash to invest. You decide to sell short $5,000 worth of Kinston stock and invest the proceeds from your short sale, plus your $10,000 into one-year U.S. treasury bills earning 5%. At the end of the year, you decide to liquidate your portfolio. Kinston Industries has the following realized returns: The return on your portfolio is closest to:

The beta for the market is closest to:

Which of the following statements is FALSE?

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 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%. -You want to maximize your expected return without increasing your risk. Without increasing your volatility beyond its current 10%, the maximum expected return you could earn 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:

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 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 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' beta with the market is closest to: