Question 1

Studies have shown that a well-diversified investor needs as few as five stocks.

Accepted Answer

A) True 
 B)False

Question 2

Combining assets that are NOT perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.

Accepted Answer

A) True 
 B)False

Question 3

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.3. What is the standard deviation of this portfolio?

Accepted Answer

A)  3.68% 
B)  4.56% 
C)  4.99% 
D)  5.16% 
E)  6.02% 
A)  3.68% 
B)  4.56% 
C)  4.99% 
D)  5.16% 
E)  6.02%

Question 4

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.10. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( $\sigma$i), covariance (COVi,j), and asset weight (Wi) are as shown above?

Accepted Answer

A)  11% 
B)  12% 
C)  13% 
D)  14% 
E)  15% 
A)  11% 
B)  12% 
C)  13% 
D)  14% 
E)  15%

Question 5

As the number of risky assets in a portfolio increases, the total risk of the portfolio decreases.

Accepted Answer

A) True 
 B)False

Question 6

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.9. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( $\sigma$i), covariance (COVi,j), and asset weight (Wi) are as shown above?

Accepted Answer

A)  10.10% 
B)  11.60% 
C)  13.88% 
D)  14.50% 
E)  15.37% 
A)  10.10% 
B)  11.60% 
C)  13.88% 
D)  14.50% 
E)  15.37%

Question 7

All of the following are common risk measurements EXCEPT

Accepted Answer

A)  standard deviation. 
B)  variance. 
C)  semivariance. 
D)  covariance. 
E)  range of returns. 
A)  standard deviation. 
B)  variance. 
C)  semivariance. 
D)  covariance. 
E)  range of returns.

Question 8

Because many of the assumptions made by the capital market theory are unrealistic, the theory is NOT applicable in the real world.

Accepted Answer

A) True 
 B)False

Question 9

An investor is risk neutral if she chooses the asset with lower risk given a choice of several assets with equal returns.

Accepted Answer

A) True 
 B)False

Question 10

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Based on the economic outlook for the industry, a financial analyst covering Top Choice Corporation has determined the following three possible returns given three different states of the economy over the next period.
  
-Refer to Exhibit 6.16. What is the expected return for Top Choice Corporation?

Accepted Answer

A)  5.2 percent 
B)  10.4 percent 
C)  13.7 percent 
D)  15.0 percent 
E)  17.6 percent 
A)  5.2 percent 
B)  10.4 percent 
C)  13.7 percent 
D)  15.0 percent 
E)  17.6 percent

Question 11

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.11. Calculate the expected return of the two-stock portfolio.

Accepted Answer

A)  0.107 
B)  0.1367 
C)  0.1169 
D)  0.1872 
E)  0.20 
A)  0.107 
B)  0.1367 
C)  0.1169 
D)  0.1872 
E)  0.20

Question 12

All of the following questions remain to be answered in the real world EXCEPT

Accepted Answer

A)  What is a good proxy for the market portfolio? 
B)  What happens when you cannot borrow or lend at the risk-free rate? 
C)  How good is the capital asset model as a predictor? 
D)  What is the beta of the market portfolio of risky assets? 
E)  What is the stability of beta for individual stocks? 
A)  What is a good proxy for the market portfolio? 
B)  What happens when you cannot borrow or lend at the risk-free rate? 
C)  How good is the capital asset model as a predictor? 
D)  What is the beta of the market portfolio of risky assets? 
E)  What is the stability of beta for individual stocks?

Question 13

The market portfolio consists of all risky assets.

Accepted Answer

A) True 
 B)False

Question 14

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.8. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( $\sigma$i), covariance (COVi,j), and asset weight (Wi) are as shown above?

Accepted Answer

A)  6.4% 
B)  9.1% 
C)  10.2% 
D)  10.8% 
E)  11.2% 
A)  6.4% 
B)  9.1% 
C)  10.2% 
D)  10.8% 
E)  11.2%

Question 15

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.10. What is the standard deviation of this portfolio?

Accepted Answer

A)  3.02% 
B)  4.88% 
C)  5.24% 
D)  5.98% 
E)  6.52% 
A)  3.02% 
B)  4.88% 
C)  5.24% 
D)  5.98% 
E)  6.52%

Question 16

If the covariance of two stocks is positive, these stocks tend to move together over time.

Accepted Answer

A) True 
 B)False

Question 17

The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.

Accepted Answer

A)  absolute 
B)  relative 
C)  indexed 
D)  loglinear 
E)  squared 
A)  absolute 
B)  relative 
C)  indexed 
D)  loglinear 
E)  squared

Question 18

The separation theorem divides decisions on ____ from decisions on ____.

Accepted Answer

A)  lending, borrowing 
B)  risk, return 
C)  investing, financing 
D)  risky assets, risk free assets 
E)  buying stocks, buying bonds 
A)  lending, borrowing 
B)  risk, return 
C)  investing, financing 
D)  risky assets, risk free assets 
E)  buying stocks, buying bonds

Question 19

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.1. What is the standard deviation of this portfolio?

Accepted Answer

A)  8.79% 
B)  13.75% 
C)  12.5% 
D)  7.72% 
E)  5.64% 
A)  8.79% 
B)  13.75% 
C)  12.5% 
D)  7.72% 
E)  5.64%

Question 20

The set of portfolios with the maximum rate of return for every given risk level is known as the optimal frontier.

Accepted Answer

A) True 
 B)False

Studies have shown that a well-diversified investor needs as few as five stocks.

Combining assets that are NOT perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.3. What is the standard deviation of this portfolio?

As the number of risky assets in a portfolio increases, the total risk of the portfolio decreases.

All of the following are common risk measurements EXCEPT

Because many of the assumptions made by the capital market theory are unrealistic, the theory is NOT applicable in the real world.

An investor is risk neutral if she chooses the asset with lower risk given a choice of several assets with equal returns.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.11. Calculate the expected return of the two-stock portfolio.

All of the following questions remain to be answered in the real world EXCEPT

The market portfolio consists of all risky assets.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.10. What is the standard deviation of this portfolio?

If the covariance of two stocks is positive, these stocks tend to move together over time.

The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.

The separation theorem divides decisions on from decisions on .

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.1. What is the standard deviation of this portfolio?

The set of portfolios with the maximum rate of return for every given risk level is known as the optimal frontier.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

Exam 6: An Introduction to Portfolio Management

Studies have shown that a well-diversified investor needs as few as five stocks.

Combining assets that are NOT perfectly correlated does affect both the expected return of the portfolio as well as the risk of the portfolio.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.3. What is the standard deviation of this portfolio?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.10. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ\sigmaσ i), covariance (COVi,j), and asset weight (Wi) are as shown above?

As the number of risky assets in a portfolio increases, the total risk of the portfolio decreases.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.9. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ\sigmaσ i), covariance (COVi,j), and asset weight (Wi) are as shown above?

All of the following are common risk measurements EXCEPT

Because many of the assumptions made by the capital market theory are unrealistic, the theory is NOT applicable in the real world.

An investor is risk neutral if she chooses the asset with lower risk given a choice of several assets with equal returns.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.11. Calculate the expected return of the two-stock portfolio.

All of the following questions remain to be answered in the real world EXCEPT

The market portfolio consists of all risky assets.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.8. What is the expected return of a portfolio of two risky assets if the expected return E(Ri), standard deviation ( σ\sigmaσ i), covariance (COVi,j), and asset weight (Wi) are as shown above?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.10. What is the standard deviation of this portfolio?

If the covariance of two stocks is positive, these stocks tend to move together over time.

The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.

The separation theorem divides decisions on ____ from decisions on ____.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.1. What is the standard deviation of this portfolio?

The set of portfolios with the maximum rate of return for every given risk level is known as the optimal frontier.

The Investment Setting

The Investment Setting: Part A

Asset Allocation and Security Selection

Asset Allocation and Security Selection: Part A

Organization and Functioning of Securities Markets

Security Market Indexes and Index Funds

Efficient Capital Markets, Behavioral Finance, and Technical Analysis

An Introduction to Portfolio Management: Part A

An Introduction to Portfolio Management: Part B

Asset Pricing Models

Equity Valuation

The Top-Down Approach to Market, Industry, and Company Analysis

The Practice of Fundamental Investing

Equity Portfolio Management Strategies

Bond Fundamentals and Valuation

Bond Analysis and Portfolio Management Strategies

An Introduction to Derivative Markets and Securities

Forward, Futures, and Swap Contracts

Option Contracts

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Filters

The separation theorem divides decisions on from decisions on .