Question 1

The slope of the efficient frontier is calculated as follows

Accepted Answer

A)  E(Rportfolio)/E( $\sigma$portfolio) 
B)  E( $\sigma$portfolio)/ E(Rportfolio) 
C)  $\Delta$E(Rportfolio)/$\Delta$E( $\sigma$portfolio) 
D)  $\Delta$E( $\sigma$portfolio)/$\Delta$E(Rportfolio) 
E)  None of the above 
A)  E(Rportfolio)/E( $\sigma$portfolio) 
B)  E( $\sigma$portfolio)/ E(Rportfolio) 
C)  $\Delta$E(Rportfolio)/$\Delta$E( $\sigma$portfolio) 
D)  $\Delta$E( $\sigma$portfolio)/$\Delta$E(Rportfolio) 
E)  None of the above

Question 2

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 standard deviation for Magnum Oil.

Accepted Answer

A)  0 percent 
B)  11 percent 
C)  16 percent 
D)  20 percent 
E)  26 percent 
A)  0 percent 
B)  11 percent 
C)  16 percent 
D)  20 percent 
E)  26 percent

Question 3

A portfolio is considered to be efficient if

Accepted Answer

A)  no other portfolio offers higher expected returns with the same risk. 
B)  no other portfolio offers lower risk with the same expected return. 
C)  there is no portfolio with a higher return. 
D)  it is the risk-minimizing portfolio. 
E)  it is the risk-maximizing portfolio. 
A)  no other portfolio offers higher expected returns with the same risk. 
B)  no other portfolio offers lower risk with the same expected return. 
C)  there is no portfolio with a higher return. 
D)  it is the risk-minimizing portfolio. 
E)  it is the risk-maximizing portfolio.

Question 4

Which of the following would most closely resemble the true market portfolio?

Accepted Answer

A)  stocks 
B)  stocks and bonds 
C)  stocks, bonds, and foreign securities 
D)  stocks, bonds, foreign securities, and options 
E)  stocks, bonds, foreign securities options, and coins 
A)  stocks 
B)  stocks and bonds 
C)  stocks, bonds, and foreign securities 
D)  stocks, bonds, foreign securities, and options 
E)  stocks, bonds, foreign securities options, and coins

Question 5

A basic assumption of the Markowitz model is that investors base decisions solely on expected return and risk.

Accepted Answer

A) True 
 B)False

Question 6

A portfolio manager is considering adding another security to his portfolio. The correlations of the five alternatives available are listed below. Which security would enable the highest level of risk diversification?

Accepted Answer

A)  0.0 
B)  0.25 
C)  - 0.25 
D)  - 0.75 
E)  1.0 
A)  0.0 
B)  0.25 
C)  - 0.25 
D)  - 0.75 
E)  1.0

Question 7

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r1,2 = .80 and w1 = .60.

Accepted Answer

A)  .144 and .0002 
B)  .144 and .0018 
C)  .136 and .0045 
D)  .136 and .0455 
E)  .136 and .4554 
A)  .144 and .0002 
B)  .144 and .0018 
C)  .136 and .0045 
D)  .136 and .0455 
E)  .136 and .4554

Question 8

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
  
-Refer to Exhibit 6.3. 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)  8.95% 
B)  9.30% 
C)  9.95% 
D)  10.20% 
E)  10.70% 
A)  8.95% 
B)  9.30% 
C)  9.95% 
D)  10.20% 
E)  10.70%

Question 9

Assuming that everyone agrees on the efficient frontier (given a set of costs), there would be consensus that the optimal portfolio on the frontier would be where the ratio of return per unit of risk was greatest.

Accepted Answer

A) True 
 B)False

Question 10

A positive covariance between two variables indicates that

Accepted Answer

A)  the two variables move in different directions. 
B)  the two variables move in the same direction. 
C)  the two variables are low risk. 
D)  the two variables are high risk. 
E)  the two variables are risk free. 
A)  the two variables move in different directions. 
B)  the two variables move in the same direction. 
C)  the two variables are low risk. 
D)  the two variables are high risk. 
E)  the two variables are risk free.

Question 11

All of the following are assumptions of the Capital Asset Pricing Model (CAPM) EXCEPT

Accepted Answer

A)  investors can borrow and lend any amount at the risk-free rate. 
B)  investors all have homogeneous expectations regarding expected returns. 
C)  investors can have different time horizons, daily, weekly, annual, or some other period. 
D)  all investments are infinitely divisible. 
E)  capital markets are in equilibrium. 
A)  investors can borrow and lend any amount at the risk-free rate. 
B)  investors all have homogeneous expectations regarding expected returns. 
C)  investors can have different time horizons, daily, weekly, annual, or some other period. 
D)  all investments are infinitely divisible. 
E)  capital markets are in equilibrium.

Question 12

The optimal portfolio is identified at the point of tangency between the efficient frontier and the

Accepted Answer

A)  highest possible utility curve. 
B)  lowest possible utility curve. 
C)  middle range utility curve. 
D)  steepest utility curve. 
E)  flattest utility curve. 
A)  highest possible utility curve. 
B)  lowest possible utility curve. 
C)  middle range utility curve. 
D)  steepest utility curve. 
E)  flattest utility curve.

Question 13

Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

Accepted Answer

A) True 
 B)False

Question 14

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 standard deviation for Top Choice Corporation?

Accepted Answer

A)  0.1 percent 
B)  6.3 percent 
C)  7.9 percent 
D)  9.4 percent 
E)  12.1 percent 
A)  0.1 percent 
B)  6.3 percent 
C)  7.9 percent 
D)  9.4 percent 
E)  12.1 percent

The slope of the efficient frontier is calculated as follows

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 standard deviation for Magnum Oil.

A portfolio is considered to be efficient if

Which of the following would most closely resemble the true market portfolio?

A basic assumption of the Markowitz model is that investors base decisions solely on expected return and risk.

A portfolio manager is considering adding another security to his portfolio. The correlations of the five alternatives available are listed below. Which security would enable the highest level of risk diversification?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r_1,2 = .80 and w₁ = .60.

Assuming that everyone agrees on the efficient frontier (given a set of costs), there would be consensus that the optimal portfolio on the frontier would be where the ratio of return per unit of risk was greatest.

A positive covariance between two variables indicates that

All of the following are assumptions of the Capital Asset Pricing Model (CAPM) EXCEPT

The optimal portfolio is identified at the point of tangency between the efficient frontier and the

Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

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

The slope of the efficient frontier is calculated as follows

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 standard deviation for Magnum Oil.

A portfolio is considered to be efficient if

Which of the following would most closely resemble the true market portfolio?

A basic assumption of the Markowitz model is that investors base decisions solely on expected return and risk.

A portfolio manager is considering adding another security to his portfolio. The correlations of the five alternatives available are listed below. Which security would enable the highest level of risk diversification?

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r1,2 = .80 and w1 = .60.

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.3. 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?

Assuming that everyone agrees on the efficient frontier (given a set of costs), there would be consensus that the optimal portfolio on the frontier would be where the ratio of return per unit of risk was greatest.

A positive covariance between two variables indicates that

All of the following are assumptions of the Capital Asset Pricing Model (CAPM) EXCEPT

The optimal portfolio is identified at the point of tangency between the efficient frontier and the

Increasing the correlation among assets in a portfolio results in an increase in the standard deviation of the portfolio.

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

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r_1,2 = .80 and w₁ = .60.