Question 1

Which of the following statements is FALSE?

Accepted Answer

A) Investors may have different information regarding expected returns,correlations,and volatilities,but they correctly interpret that information and the information contained in market prices and they adjust their estimates of expected returns in a rational way. 
B) Investors may learn different information through their own research and observations,but as long as they understand the differences in information and learn from other investors by observing prices,the CAPM conclusions still stand. 
C) Every investor,regardless of how much information he has access to,can guarantee himself an alpha of zero by holding the market portfolio. 
D) The CAPM requires making the strong assumption of homogeneous expectations. 
A) Investors may have different information regarding expected returns,correlations,and volatilities,but they correctly interpret that information and the information contained in market prices and they adjust their estimates of expected returns in a rational way. 
B) Investors may learn different information through their own research and observations,but as long as they understand the differences in information and learn from other investors by observing prices,the CAPM conclusions still stand. 
C) Every investor,regardless of how much information he has access to,can guarantee himself an alpha of zero by holding the market portfolio. 
D) The CAPM requires making the strong assumption of homogeneous expectations.

Question 2

Which of the following statements is FALSE?

Accepted Answer

A) A portfolio is efficient if it has the highest possible Sharpe ratio; that is it is efficient if it provides the largest increase in expected return possible for a given increase in volatility. 
B) The required return for an investment is equal to a risk premium that is equal to the risk premium of the investor's current portfolio scaled by   . 
C) Increasing the investment in investment I will increase the Sharpe ratio of portfolio P if its expected return E[Ri] exceeds the required return ri,which is given by ri = rf +   × (E[Rp] - rf). 
D) If a security i's expected return is less than the required return ri,we should reduce our holding of security i. 
A) A portfolio is efficient if it has the highest possible Sharpe ratio; that is it is efficient if it provides the largest increase in expected return possible for a given increase in volatility. 
B) The required return for an investment is equal to a risk premium that is equal to the risk premium of the investor's current portfolio scaled by   . 
C) Increasing the investment in investment I will increase the Sharpe ratio of portfolio P if its expected return E[Ri] exceeds the required return ri,which is given by ri = rf +   × (E[Rp] - rf). 
D) If a security i's expected return is less than the required return ri,we should reduce our holding of security i.

Question 3

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:

Accepted Answer

A) 10% 
B) 12% 
C) 9% 
D) 8% 
A) 10% 
B) 12% 
C) 9% 
D) 8%

Question 4

The volatility of your investment is closest to:

Accepted Answer

A) 40% 
B) 20% 
C) 30% 
D) 24% 
A) 40% 
B) 20% 
C) 30% 
D) 24%

Question 5

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:

Accepted Answer

A) 72% 
B) 92% 
C) 110% 
D) 140% 
A) 72% 
B) 92% 
C) 110% 
D) 140%

Question 6

Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then calculate the required return on Mary's portfolio.

Accepted Answer

bp_ortfolio = Σx_ib_i r_i = r_f + b(E

Question 7

Which of the following statements is FALSE?

Accepted Answer

A) Because of the higher and uncompensated risk involved,no investor should choose a portfolio with a negative alpha. 
B) Because the average portfolio of all investors is the market portfolio,the average alpha for all investors is zero. 
C) The market portfolio can be inefficient if a significant number of investors misinterpret information and believe they are earning a positive alpha when they are actually earning a negative alpha. 
D) If no investor earns a positive alpha,then no investor can earn a negative alpha,and the market portfolio must be efficient. 
A) Because of the higher and uncompensated risk involved,no investor should choose a portfolio with a negative alpha. 
B) Because the average portfolio of all investors is the market portfolio,the average alpha for all investors is zero. 
C) The market portfolio can be inefficient if a significant number of investors misinterpret information and believe they are earning a positive alpha when they are actually earning a negative alpha. 
D) If no investor earns a positive alpha,then no investor can earn a negative alpha,and the market portfolio must be efficient.

Question 8

Which of the following statements is FALSE?

Accepted Answer

A) Graphically,the efficient portfolios are those on the northeast edge of the set of possible portfolios,an area which we call the efficient frontier. 
B) To arrive at the best possible set of risk and return opportunities,we should keep adding stocks until all investment opportunities are represented. 
C) We say a portfolio is short those stocks that have negative portfolio weights. 
D) Adding new investment opportunities allows for greater diversification and improves the efficient frontier. 
A) Graphically,the efficient portfolios are those on the northeast edge of the set of possible portfolios,an area which we call the efficient frontier. 
B) To arrive at the best possible set of risk and return opportunities,we should keep adding stocks until all investment opportunities are represented. 
C) We say a portfolio is short those stocks that have negative portfolio weights. 
D) Adding new investment opportunities allows for greater diversification and improves the efficient frontier.

Question 9

The Sharpe ratio for the efficient portfolio is closest to:

Accepted Answer

A) 0.7 
B) 1.0 
C) 1.4 
D) 1.2 
A) 0.7 
B) 1.0 
C) 1.4 
D) 1.2

Question 10

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

Accepted Answer

A) 35% 
B) 31% 
C) 42% 
D) 18% 
A) 35% 
B) 31% 
C) 42% 
D) 18%

Question 11

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

Accepted Answer

R_p = x₁R₁ + x

Question 12

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?

Accepted Answer

A) 13.50% 
B) 14.00% 
C) 13.75% 
D) 14.50% 
A) 13.50% 
B) 14.00% 
C) 13.75% 
D) 14.50%

Question 13

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

Accepted Answer

The answer of Use the table for the question(s)below.
Consider the...

Question 14

Suppose you have $10,000 in cash to invest.You decide to sell short $5000 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:

Accepted Answer

A) -0.5% 
B) 13.5% 
C) -2.5% 
D) 14.5% 
A) -0.5% 
B) 13.5% 
C) -2.5% 
D) 14.5%

Question 15

The weight on Abbott Labs in your portfolio is:

Accepted Answer

A) 50% 
B) 40% 
C) 30% 
D) 20% 
A) 50% 
B) 40% 
C) 30% 
D) 20%

Question 16

Use the table for the question(s)below.
Consider the following returns:
  
-The variance on a portfolio that is made up of equal investments in Stock X and Stock Y is closest to:

Accepted Answer

A) 0.12 
B) 0.10 
C) 0.69 
D) 0.29 
A) 0.12 
B) 0.10 
C) 0.69 
D) 0.29

Question 17

Which of the following statements is FALSE?

Accepted Answer

A) A portfolio that consists of a long position in the risk-free investment is known as a levered portfolio. 
B) The optimal portfolio will not depend on the investor's personal tradeoff between risk and return. 
C) The volatility of the risk-free investment is zero. 
D) Our total volatility is only a fraction of the volatility of the efficient portfolio,based on the amount we invest in the risk free asset. 
A) A portfolio that consists of a long position in the risk-free investment is known as a levered portfolio. 
B) The optimal portfolio will not depend on the investor's personal tradeoff between risk and return. 
C) The volatility of the risk-free investment is zero. 
D) Our total volatility is only a fraction of the volatility of the efficient portfolio,based on the amount we invest in the risk free asset.

Question 18

Which of the following equations is INCORRECT?

Accepted Answer

A) Cov(Ri,Rj)=   Σ(Ri - Ri)(Rj - Rj) 
B) Var(Rp)= x12Var(R1)+ x22Var(R2)+ 2X1X2Cov(R1,R2) 
C) Corr(Ri,Rj)=   
D) Cov(Ri,Rj)= E[(Ri - E[Ri])(Rj - E[Rj])] 
A) Cov(Ri,Rj)=   Σ(Ri - Ri)(Rj - Rj) 
B) Var(Rp)= x12Var(R1)+ x22Var(R2)+ 2X1X2Cov(R1,R2) 
C) Corr(Ri,Rj)=   
D) Cov(Ri,Rj)= E[(Ri - E[Ri])(Rj - E[Rj])]

Question 19

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:

Accepted Answer

A) -10.0% 
B) 43.5% 
C) 45.0% 
D) 50.0% 
A) -10.0% 
B) 43.5% 
C) 45.0% 
D) 50.0%

Question 20

The expected return on the alternative investment having the highest possible expected return while having the same volatility as Google is closest to?

Accepted Answer

A) 21.6% 
B) 19.6% 
C) 23.4% 
D) 35.0% 
A) 21.6% 
B) 19.6% 
C) 23.4% 
D) 35.0%

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 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:

The volatility of your investment is closest to:

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:

Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then calculate the required return on Mary's portfolio.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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 Y's returns is closest to:

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

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

The weight on Abbott Labs in your portfolio is:

Use the table for the question(s)below. Consider the following returns: -The variance on a portfolio that is made up of equal investments in Stock X and Stock Y is closest to:

Which of the following statements is FALSE?

Which of the following equations is INCORRECT?

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:

The expected return on the alternative investment having the highest possible expected return while having the same volatility as Google is closest to?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

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

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 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:

The volatility of your investment is closest to:

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:

Assuming that the risk-free rate is 4% and the expected return on the market is 12%,then calculate the required return on Mary's portfolio.

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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 Y's returns is closest to:

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

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

The weight on Abbott Labs in your portfolio is:

Use the table for the question(s)below. Consider the following returns: -The variance on a portfolio that is made up of equal investments in Stock X and Stock Y is closest to:

Which of the following statements is FALSE?

Which of the following equations is INCORRECT?

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:

The expected return on the alternative investment having the highest possible expected return while having the same volatility as Google is closest to?

The Corporation

Introduction to Financial Statement Analysis

Financial Decision Making and the Law of One Price

The Time Value of Money

Interest Rates

Valuing Bonds

Investment Decision Rules

Fundamentals of Capital Budgeting

Valuing Stocks

Capital Markets and the Pricing of Risk

Estimating the Cost of Capital

Investor Behavior and Capital Market Efficiency

Capital Structure in a Perfect Market

Debt and Taxes

Financial Distress,managerial Incentives,and Information

Payout Policy

Capital Budgeting and Valuation With Leverage

Valuation and Financial Modeling: a Case Study

Filters