Exam 6: An Introduction to Portfolio Management

Between 1975 and 1985, the standard deviation of the returns for the NYSE and the S&P 500 indexes were 0.06 and 0.07, respectively, and the covariance of these index returns was 0.0008. What was the correlation coefficient between the two market indicators?

Between 1980 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.08 and 0.10, respectively, and the covariance of these index returns was 0.0007. What was the correlation coefficient between the two market indicators?

Between 1990 and 2000, the standard deviation of the returns for the NIKKEI and the DJIA indexes were 0.18 and 0.16, respectively, and the covariance of these index returns was 0.003. What was the correlation coefficient between the two market indicators?

One of the assumptions of capital market theory is that investors can borrow or lend at the risk-free rate.

An individual investor's utility curves specify the tradeoffs he or she is willing to make between

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.12. Calculate the expected return and expected standard deviation of a two-stock portfolio when r_1,2 = -0.60 and w₁ = .75.

16.99%What is the expected return of the three-stock portfolio described below?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.15. What is the standard deviation of this portfolio?

Theoretically, the correlation coefficient between a completely diversified portfolio and the market portfolio should be

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.9. What is the standard deviation of this portfolio?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) A financial analyst covering Magnum Oil has determined the following four possible returns given four different states of the economy over the next period. -Refer to Exhibit 6.13. Calculate the expected return for Magnum Oil.

Prior to the work of Markowitz in the late 1950's and early 1960's, portfolio managers did NOT have a well-developed, quantitative means of measuring risk.

The rate of return on a risk-free asset should equal the

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed. -Refer to Exhibit 6.14. What is the standard deviation of the stock A and B portfolio?

You are given a two-asset portfolio with a fixed correlation coefficient. If the weights of the two assets are varied the expected portfolio return would be ____ and the expected portfolio standard deviation would be ____.

Which of the following is NOT an assumption of the Capital Market Theory?

A risk-free asset is one in which the return is completely guaranteed; there is no uncertainty.

Markowitz assumed that, given an expected return, investors prefer to minimize risk.

The combination of two assets that are completely negatively correlated provides maximum returns.

If you borrow money at the RFR and invest the money in the market portfolio, the rate of return on your portfolio will be higher than the market rate of return.