Exhibit 6-10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) \(\begin{array}{c} \begin{array}{cc} \text { Asset }(\mathrm{A}) & \text { Asset }(\mathrm{B}) \\ \hline \mathrm{E}\left(\mathrm{R}_{\mathrm{A}}\right)=16 \% & \mathrm{E}\left(\mathrm{R}_{\mathrm{B}}\right)=14 \% \\ \left(\sigma_{\mathrm{A}}\right)=3 \% & \left(\sigma_{\mathrm{B}}\right)=8 \% \\ \mathrm{~W}_{\mathrm{A}}=0.5 & \mathrm{~W}_{\mathrm{B}}=0.5 \end{array}\\ \mathrm{COV}_{\mathrm{A,B}}=0.0014 \end{array}\) -Refer to Exhibit 6-10. What is the standard deviation of this portfolio?

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% C

What is the expected return of the three-stock portfolio described below? \(\begin{array}{lcc} \text { Common Stock } & \text { Market Value } & \text { Expected Return } \\ \hline \text { Alko Inc. } & 25,000 & 38 \% \\ \text { Belmont Co. } & 100,000 & 10 \% \\ \text { Cardo Inc. } & 75,000 & 16 \% \end{array}\)

A) 21.33% B) 12.50% C) 32.00% D) 15.75% E) 16.80% A) 21.33% B) 12.50% C) 32.00% D) 15.75% E) 16.80%

Exhibit 6-6 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) \(\begin{array}{c} \begin{array}{cc} \text { Asset }(A) & \text { Asset }(B) \\ \hline E\left(R_{A}\right)=16 \% & E\left(R_{B}\right)=10 \% \\ \left(\sigma_{A}\right)=9 \% & \left(\sigma_{B}\right)=7 \% \\ W_{A}=0.5 & W_{B}=0.5 \end{array}\\ \mathrm{COV}_{\mathrm{AB}}=0.0009 \end{array}\) -Refer to Exhibit 6-6. What is the standard deviation of this portfolio?

A) 6.08% B) 5.89% C) 7.06% D) 6.54% E) 7.26% A) 6.08% B) 5.89% C) 7.06% D) 6.54% E) 7.26%

Exhibit 6-9 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) \(\begin{array}{c} \begin{array}{cc} \text { Asset }(\mathrm{A}) & \text { Asset }(\mathrm{B}) \\ \hline \mathrm{E}\left(\mathrm{R}_{\mathrm{A}}\right)=18 \% & \mathrm{E}\left(\mathrm{R}_{\mathrm{B}}\right)=13 \% \\ \left(\sigma_{\mathrm{A}}\right)=7 \% & \left(\sigma_{\mathrm{B}}\right)=6 \% \\ \mathrm{~W}_{\mathrm{A}}=0.3 & \mathrm{~W}_{\mathrm{B}}=0.7 \end{array}\\ \mathrm{COV}_{\mathrm{AB}}=0.0011 \end{array}\) -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 (?i), covariance (COVi,j), and asset weight (Wi) are as shown above?

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%

What is the expected return of the three-stock portfolio described below? \(\begin{array}{lcc} \text { Common Stock } & \text { Market Value } & \text { Expected Return } \\ \hline \text { Xerox } & 125,000 & 8 \% \\ \text { Yelcon } & 250,000 & 25 \% \\ \text { Zwiebal } & 175,000 & 16 \% \end{array}\)

A) 18.27% B) 14.33% C) 16.33% D) 12.72% E) 16.45% A) 18.27% B) 14.33% C) 16.33% D) 12.72% E) 16.45%

What is the expected return of the three-stock portfolio described below? \(\begin{array}{lcc} \text { Common Stock } & \text { Market Value } & \text { Expected Return } \\ \hline\text { Lupko Inc. } & 50,000 & 13 \% \\ \text { Mackey Co. } & 25,000 & 9 \% \\ \text { Nippon Inc. } & 75,000 & 14 \% \end{array}\)

A) 12.04% B) 12.83% C) 13.07% D) 15.89% E) 17.91% A) 12.04% B) 12.83% C) 13.07% D) 15.89% E) 17.91%

Exhibit 6-14 USE THE FOLLOWING INFORMATION FOR THE NEXT 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. \(\begin{array}{ccc} \text { Stock } & \text { Expected Return } & \text { Standard Deviation } \\ \hline\mathrm{A} & 20 \% & 25 \% \\ \mathrm{B} & 15 \% & 10 \% \end{array}\) -Refer to Exhibit 6-14. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?

A) 35% B) 42% C) 58% D) 65% E) 72% A) 35% B) 42% C) 58% D) 65% E) 72%

Exam 6: An Introduction to Portfolio Management

Exhibit 6-10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset () Asset () =16\% =14\% =3\% =8\% =0.5 =0.5 =0.0014 -Refer to Exhibit 6-10. What is the standard deviation of this portfolio?

Free

(Multiple Choice)

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Question 1

Correct Answer:

Verified

C

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

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(True/False)

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Question 2

Correct Answer:

Verified

True

Between 1999 and 2009, the standard deviation of the returns for the S&P/TSX 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?

Free

(Multiple Choice)

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Question 3

Correct Answer:

Verified

C

What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Alko Inc. 25,000 38\% Belmont Co. 100,000 10\% Cardo Inc. 75,000 16\%

(Multiple Choice)

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Question 4

Exhibit 6-14 USE THE FOLLOWING INFORMATION FOR THE NEXT 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. Stock Expected Return Standard Deviation 20\% 25\% 15\% 10\% -Refer to Exhibit 6-14. What is the expected return of the stock A and B portfolio?

(Multiple Choice)

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Question 5

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

(True/False)

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Question 6

In a given a portfolio of stocks, what is the envelope curve containing the set of best possible combinations known as?

(Multiple Choice)

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Question 7

Exhibit 6-6 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset (A) Asset (B) E =16\% E =10\% =9\% =7\% =0.5 =0.5 =0.0009 -Refer to Exhibit 6-6. What is the standard deviation of this portfolio?

(Multiple Choice)

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Question 8

What will happen to the return, if equal risk is added moving along the envelope curve containing the best possible combinations?

(Multiple Choice)

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Question 9

The correlation coefficient and the covariance are measures of the extent to which two random variables move together.

(True/False)

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Question 10

Between 1989and 2009, the standard deviation of the returns for the S&P/TSX 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?

(Multiple Choice)

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Question 11

Exhibit 6-9 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset () Asset () =18\% =13\% =7\% =6\% =0.3 =0.7 =0.0011 -Refer to Exhibit 6-9. What is the expected return of a portfolio of two risky assets if the expected return E(R_i), standard deviation (?_i), covariance (COV_i,j), and asset weight (W_i) are as shown above?

(Multiple Choice)

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Question 12

What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Xerox 125,000 8\% Yelcon 250,000 25\% Zwiebal 175,000 16\%

(Multiple Choice)

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Question 13

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

(True/False)

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Question 14

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

(Multiple Choice)

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Question 15

What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Lupko Inc. 50,000 13\% Mackey Co. 25,000 9\% Nippon Inc. 75,000 14\%

(Multiple Choice)

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Question 16

When individuals evaluate their portfolios they should evaluate

(Multiple Choice)

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Question 17

Exhibit 6-14 USE THE FOLLOWING INFORMATION FOR THE NEXT 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. Stock Expected Return Standard Deviation 20\% 25\% 15\% 10\% -Refer to Exhibit 6-14. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?

(Multiple Choice)

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Question 18

Between 1998 and 2008, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.09, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators?

(Multiple Choice)

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Question 19

The slope of the utility curves for a strongly risk-averse investor, relative to the slope of the utility curves for a less risk-averse investor, will

(Multiple Choice)

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Question 20

Exhibit 6-10 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset () Asset () =16\% =14\% =3\% =8\% =0.5 =0.5 =0.0014 -Refer to Exhibit 6-10. What is the standard deviation of this portfolio?

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

Between 1999 and 2009, the standard deviation of the returns for the S&P/TSX 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?

What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Alko Inc. 25,000 38\% Belmont Co. 100,000 10\% Cardo Inc. 75,000 16\%

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

In a given a portfolio of stocks, what is the envelope curve containing the set of best possible combinations known as?

Exhibit 6-6 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset (A) Asset (B) E =16\% E =10\% =9\% =7\% =0.5 =0.5 =0.0009 -Refer to Exhibit 6-6. What is the standard deviation of this portfolio?

What will happen to the return, if equal risk is added moving along the envelope curve containing the best possible combinations?

The correlation coefficient and the covariance are measures of the extent to which two random variables move together.

Between 1989and 2009, the standard deviation of the returns for the S&P/TSX 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?

What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Xerox 125,000 8\% Yelcon 250,000 25\% Zwiebal 175,000 16\%

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

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

What is the expected return of the three-stock portfolio described below? Common Stock Market Value Expected Return Lupko Inc. 50,000 13\% Mackey Co. 25,000 9\% Nippon Inc. 75,000 14\%

When individuals evaluate their portfolios they should evaluate

Between 1998 and 2008, the standard deviation of the returns for the NYSE and the DJIA indexes were 0.10 and 0.09, respectively, and the covariance of these index returns was 0.0009. What was the correlation coefficient between the two market indicators?

The slope of the utility curves for a strongly risk-averse investor, relative to the slope of the utility curves for a less risk-averse investor, will

The Investment Setting

The Asset Allocation Decision

Selecting Investments in a Global Market

Securities Markets and the Economy

Efficient Capital Markets

Asset Pricing Models: Capm and Apt

Economic and Industry Analysis

Company Analysis and Stock Valuation

Technical Analysis

Bond Fundamentals

The Analysis and Valuation of Bonds

An Introduction to Derivative Markets and Securities

Derivatives: Analysis and Valuation

Equity Portfolio Management Strategies

Bond Portfolio Management Strategies

Professional Money Management, Alternative Assets, and Industry Ethics

Evaluation of Portfolio Performance

Analysis of Financial Statements

An Introduction to Security Valuation

Web Appendix: A Review of Statistics and the Security Market Line

Web Appendix: A Review of Statistics and the Security Market Line

Appendix: Objectives and Constraints of Institutional Investors

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