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

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 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. -The expected return on the alternative investment having the highest possible expected return while having the same volatility as Google 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?

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:

Which of the following equations is INCORRECT?

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 Z'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?

Which of the following statements is FALSE?

The Sharpe Ratio for Wyatt Oil 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:

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 return on your portfolio over the year is:

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%. -The Sharpe ratio for your portfolio 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 Paul'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 lowest possible volatility while having the same expected return as Google?

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 is NOT an assumption used in deriving the Capital Asset Pricing Model (CAPM)?