Question 1

Which of the following statements is FALSE?

Accepted Answer

A) When stocks are perfectly positively correlated,the set of portfolios is identified graphically by a straight line between them. 
B) An investor seeking high returns and low volatility should only invest in an efficient portfolio. 
C) When the correlation between securities is less than 1,the volatility of the portfolio is reduced due to diversification. 
D) Efficient portfolios can be easily ranked,because investors will choose from among them those with the highest expected returns. 
A) When stocks are perfectly positively correlated,the set of portfolios is identified graphically by a straight line between them. 
B) An investor seeking high returns and low volatility should only invest in an efficient portfolio. 
C) When the correlation between securities is less than 1,the volatility of the portfolio is reduced due to diversification. 
D) Efficient portfolios can be easily ranked,because investors will choose from among them those with the highest expected returns.

Question 2

The weight on Lowes in your portfolio is:

Accepted Answer

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

Question 3

What alternative investment has the highest possible expected return while having the same volatility as Google?

Accepted Answer

A) -25% in the risk-free asset and +125% in the market portfolio 
B) -20% in the risk-free asset and +120% in the market portfolio 
C) -94% in the risk-free asset and +194% in the market portfolio 
D) 6% in the risk-free asset and +94% in the market portfolio 
A) -25% in the risk-free asset and +125% in the market portfolio 
B) -20% in the risk-free asset and +120% in the market portfolio 
C) -94% in the risk-free asset and +194% in the market portfolio 
D) 6% in the risk-free asset and +94% in the market portfolio

Question 4

Which of the following statements is FALSE?

Accepted Answer

A) Short-term margin loans from a broker are often 1% to 2% lower than the rates paid on short-term Treasury securities. 
B) In the real world investors have different information and expectations regarding securities. 
C) The SML is still valid when interest rates differ. 
D) When borrowing and lending occur at different rates there are different tangent portfolios identified. 
A) Short-term margin loans from a broker are often 1% to 2% lower than the rates paid on short-term Treasury securities. 
B) In the real world investors have different information and expectations regarding securities. 
C) The SML is still valid when interest rates differ. 
D) When borrowing and lending occur at different rates there are different tangent portfolios identified.

Question 5

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:

Accepted Answer

A) 0.71 
B) 0.60 
C) 0.62 
D) 0.05 
A) 0.71 
B) 0.60 
C) 0.62 
D) 0.05

Question 6

Which of the following statements is FALSE?

Accepted Answer

A) If we increase the fraction invested in the efficient portfolio beyond 100% we are short selling the risk-free investment. 
B) As we increase the fraction invested in the efficient portfolio,we increase our risk premium but not our risk proportionately. 
C) To earn the highest possible expected return for any level of volatility we must find the portfolio that generates the steepest possible line when combined with the risk-free investment. 
D) Every investor should invest in the tangent portfolio independent of his or her taste for risk. 
A) If we increase the fraction invested in the efficient portfolio beyond 100% we are short selling the risk-free investment. 
B) As we increase the fraction invested in the efficient portfolio,we increase our risk premium but not our risk proportionately. 
C) To earn the highest possible expected return for any level of volatility we must find the portfolio that generates the steepest possible line when combined with the risk-free investment. 
D) Every investor should invest in the tangent portfolio independent of his or her taste for risk.

Question 7

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:

Accepted Answer

A) 15% 
B) 40% 
C) 23% 
D) 10% 
A) 15% 
B) 40% 
C) 23% 
D) 10%

Question 8

The volatility of the alternative investment that has the lowest possible volatility while having the same expected return as Google is closest to:

Accepted Answer

A) 18.0% 
B) 22.5% 
C) 23.4% 
D) 35.0% 
A) 18.0% 
B) 22.5% 
C) 23.4% 
D) 35.0%

Question 9

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:

Accepted Answer

A) 0.7 
B) 0.8 
C) 1.8 
D) 1.0 
A) 0.7 
B) 0.8 
C) 1.8 
D) 1.0

Question 10

Which of the following statements is FALSE?

Accepted Answer

A) Margin investing is a risky investment strategy. 
B) Because our return on the risk-free investments is fixed and does not move with (or against)our portfolio,the correlation between the risk-free investment and the portfolio is always equal to one. 
C) Short selling the risk free investment is equivalent to borrowing money at the risk-free interest rate through a standard loan. 
D) Margin investing can provide higher expected returns than investing in the efficient portfolio using only the funds we have available. 
A) Margin investing is a risky investment strategy. 
B) Because our return on the risk-free investments is fixed and does not move with (or against)our portfolio,the correlation between the risk-free investment and the portfolio is always equal to one. 
C) Short selling the risk free investment is equivalent to borrowing money at the risk-free interest rate through a standard loan. 
D) Margin investing can provide higher expected returns than investing in the efficient portfolio using only the funds we have available.

Question 11

The expected return on your investment is closest to:

Accepted Answer

A) 18% 
B) 20% 
C) 12% 
D) 24% 
A) 18% 
B) 20% 
C) 12% 
D) 24%

Question 12

Use the table for the question(s)below.
Consider the following covariances between securities:
  
-What is the variance on a portfolio that has $2000 invested in Duke Energy,$3000 invested in Microsoft,and $5000 invested in Wal-Mart stock?

Accepted Answer

@#IMG-DLM& @#IMG-DLM& @#IMG-DLM& Varianc

Question 13

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:

Accepted Answer

A) 10.0% 
B) 11.4% 
C) 11.8% 
D) 12.0% 
A) 10.0% 
B) 11.4% 
C) 11.8% 
D) 12.0%

Question 14

Which of the following statements is FALSE?

Accepted Answer

A) We can improve the performance of our portfolio by selling stocks with negative alphas. 
B) The market portfolio is on the SML,and according to the CAPM,since all other portfolios are inefficient they will not fall on the SML. 
C) The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha. 
D) The risk premium for any security is proportional to its beta with the market. 
A) We can improve the performance of our portfolio by selling stocks with negative alphas. 
B) The market portfolio is on the SML,and according to the CAPM,since all other portfolios are inefficient they will not fall on the SML. 
C) The difference between a stock's expected return and its required return according to the security market line is called the stock's alpha. 
D) The risk premium for any security is proportional to its beta with the market.

Which of the following statements is FALSE?

The weight on Lowes in your portfolio is:

What alternative investment has the highest possible expected return while having the same volatility as Google?

Which of the following statements is FALSE?

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:

Which of the following statements is FALSE?

The volatility of the alternative investment that has the lowest possible volatility while having the same expected return as Google 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?

The expected return on your investment is closest to:

Use the table for the question(s)below. Consider the following covariances between securities: -What is the variance on a portfolio that has $2000 invested in Duke Energy,$3000 invested in Microsoft,and $5000 invested in Wal-Mart stock?

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:

Which of the following statements is FALSE?

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

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

Which of the following statements is FALSE?

The weight on Lowes in your portfolio is:

What alternative investment has the highest possible expected return while having the same volatility as Google?

Which of the following statements is FALSE?

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:

Which of the following statements is FALSE?

The volatility of the alternative investment that has the lowest possible volatility while having the same expected return as Google 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?

The expected return on your investment is closest to:

Use the table for the question(s)below. Consider the following covariances between securities: -What is the variance on a portfolio that has $2000 invested in Duke Energy,$3000 invested in Microsoft,and $5000 invested in Wal-Mart stock?

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:

Which of the following statements is FALSE?

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