Question 1

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

Accepted Answer

A) True 
 B)False

Question 2

Exhibit 6-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}
\begin{array}{cc}
\text { Asset (A) } & \text { Asset (B) } \
\hline E\left(R_{A}\right)=9 \% & E\left(R_{B}\right)=11 \% \
\left(\sigma_{A}\right)=4 \% & \left(\sigma_{B}\right)=6 \% \
W_{A}=0.4 & W_{B}=0.6
\end{array}\
\mathrm{COV}_{\mathrm{A,B}}=0.0011
\end{array}$
-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 3

Semi-variance, when applied to portfolio theory, is concerned with

Accepted Answer

A)  The square root of deviations from the mean. 
B)  All deviations below the mean. 
C)  All deviations above the mean. 
D)  All deviations. 
E)  The summation of the squared deviations from the mean. 
A)  The square root of deviations from the mean. 
B)  All deviations below the mean. 
C)  All deviations above the mean. 
D)  All deviations. 
E)  The summation of the squared deviations from the mean.

Question 4

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 standard deviation of this portfolio?

Accepted Answer

A)  5.16% 
B)  5.89% 
C)  6.11% 
D)  6.57% 
E)  7.02% 
A)  5.16% 
B)  5.89% 
C)  6.11% 
D)  6.57% 
E)  7.02%

Question 5

Between 1985 and 1995, the standard deviation of the returns for the S&P/TSX and the TSX Venture 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?

Accepted Answer

A)  .1525 
B)  .1388 
C)  .1458 
D)  .1622 
E)  .1064 
A)  .1525 
B)  .1388 
C)  .1458 
D)  .1622 
E)  .1064

Question 6

The slope of the efficient frontier is calculated as follows

Accepted Answer

A)  E(Rportfolio)/E(sportfolio) 
B)  E(sportfolio)/E(Rportfolio) 
C)  DE(Rportfolio)/DE(sportfolio) 
D)  DE(sportfolio)/DE(Rportfolio) 
E)  None of the above 
A)  E(Rportfolio)/E(sportfolio) 
B)  E(sportfolio)/E(Rportfolio) 
C)  DE(Rportfolio)/DE(sportfolio) 
D)  DE(sportfolio)/DE(Rportfolio) 
E)  None of the above

Question 7

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 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?

Accepted Answer

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

Question 8

Exhibit 6-12
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{cc}
\text { Asset 1 } & \text { Asset 2 } \
\hline E\left(R_{1}\right)=.12 & E\left(R_{2}\right)=.16 \
E\left(\sigma_{1}\right)=.04 & E\left(\sigma_{2}\right)=.06
\end{array}$
-Refer to Exhibit 6-12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r?,? = .80 and w? = .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 9

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 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?

Accepted Answer

A)  10.6 % 
B)  10.2% 
C)  13.0% 
D)  11.9% 
E)  14.0% 
A)  10.6 % 
B)  10.2% 
C)  13.0% 
D)  11.9% 
E)  14.0%

Question 10

In a three-asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.

Accepted Answer

A) True 
 B)False

Question 11

Exhibit 6-12
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{cc}
\text { Asset 1 } & \text { Asset 2 } \
\hline E\left(R_{1}\right)=.12 & E\left(R_{2}\right)=.16 \
E\left(\sigma_{1}\right)=.04 & E\left(\sigma_{2}\right)=.06
\end{array}$
-Given the following weights and expected security returns, calculate the expected return for the portfolio. $\begin{array}{cc}
\text { Weight } & \text { Expected Return } \
\hline .20 & .06 \
.25 & .08 \
.30 & .10 \
.25 & 12
\end{array}$

Accepted Answer

A)  0.085 
B)  0.090 
C)  0.092 
D)  0.097 
E)  None of the above 
A)  0.085 
B)  0.090 
C)  0.092 
D)  0.097 
E)  None of the above

Question 12

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 13

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 14

A good portfolio is a collection of individually good assets.

Accepted Answer

A) True 
 B)False

Question 15

When is a portfolio considered to be efficient?

Accepted Answer

A)  When no other portfolio offers higher expected returns with the same risk. 
B)  When no other portfolio offers lower risk with the same expected return. 
C)  When there is no portfolio with a higher return. 
D)  Choices a and b 
E)  All of the above. 
A)  When no other portfolio offers higher expected returns with the same risk. 
B)  When no other portfolio offers lower risk with the same expected return. 
C)  When there is no portfolio with a higher return. 
D)  Choices a and b 
E)  All of the above.

Question 16

Exhibit 6-11
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}
\begin{array}{cc}
\text { Asset 1 } & \text { Asset 2 } \
\hline E\left(R_{1}\right)=0.28 & E\left(R_{2}\right)=0.12 \
E\left(\sigma_{1}\right)=0.15 & E\left(\sigma_{2}\right)=0.11 \
W_{1}=0.42 & W_{2}=0.58
\end{array}\
r_{1,2}=0.7
\end{array}$
-Refer to Exhibit 6-11. Calculate the expected standard deviation of the two-stock portfolio.

Accepted Answer

A)  0.1367 
B)  0.1872 
C)  0.1169 
D)  0.20 
E)  0.3950 
A)  0.1367 
B)  0.1872 
C)  0.1169 
D)  0.20 
E)  0.3950

Question 17

The most import criteria when adding new investments to a portfolio is the

Accepted Answer

A)  Expected return of the new investment. 
B)  Standard deviation of the new investment. 
C)  Correlation of the new investment with the portfolio. 
D)  Choices a and 
E)  All of the above are equally important. 
A)  Expected return of the new investment. 
B)  Standard deviation of the new investment. 
C)  Correlation of the new investment with the portfolio. 
D)  Choices a and 
E)  All of the above are equally important.

Question 18

Exhibit 6-3
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}
\begin{array}{cc}
\text { Asset (A) } & \text { Asset (B) } \
\hline E\left(R_{A}\right)=9 \% & E\left(R_{B}\right)=11 \% \
\left(\sigma_{A}\right)=4 \% & \left(\sigma_{B}\right)=6 \% \
W_{A}=0.4 & W_{B}=0.6
\end{array}\
\mathrm{COV}_{\mathrm{A,B}}=0.0011
\end{array}$
-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 (?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 19

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 is the standard deviation of the stock A and B portfolio?

Accepted Answer

A)  0.0% 
B)  0.5% 
C)  4.1% 
D)  6.9% 
E)  20.3% 
A)  0.0% 
B)  0.5% 
C)  4.1% 
D)  6.9% 
E)  20.3%

Question 20

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

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

Exhibit 6-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset (A) Asset (B) E =9\% E =11\% =4\% =6\% =0.4 =0.6 =0.0011 -Refer to Exhibit 6-3. What is the standard deviation of this portfolio?

Semi-variance, when applied to portfolio theory, is concerned with

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 standard deviation of this portfolio?

Between 1985 and 1995, the standard deviation of the returns for the S&P/TSX and the TSX Venture 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?

The slope of the efficient frontier is calculated as follows

Exhibit 6-12 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Refer to Exhibit 6-12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r?,? = .80 and w? = .60.

In a three-asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.

Exhibit 6-12 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Given the following weights and expected security returns, calculate the expected return for the portfolio. Weight Expected Return .20 .06 .25 .08 .30 .10 .25 12

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 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?

A good portfolio is a collection of individually good assets.

When is a portfolio considered to be efficient?

Exhibit 6-11 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset 1 Asset 2 E =0.28 E =0.12 E =0.15 E =0.11 =0.42 =0.58 =0.7 -Refer to Exhibit 6-11. Calculate the expected standard deviation of the two-stock portfolio.

The most import criteria when adding new investments to a portfolio is the

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

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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Exam 6: An Introduction to Portfolio Management

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

Exhibit 6-3 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset (A) Asset (B) E =9\% E =11\% =4\% =6\% =0.4 =0.6 =0.0011 -Refer to Exhibit 6-3. What is the standard deviation of this portfolio?

Semi-variance, when applied to portfolio theory, is concerned with

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 standard deviation of this portfolio?

Between 1985 and 1995, the standard deviation of the returns for the S&P/TSX and the TSX Venture 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?

The slope of the efficient frontier is calculated as follows

Exhibit 6-12 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Refer to Exhibit 6-12. Calculate the expected returns and expected standard deviations of a two-stock portfolio when r?,? = .80 and w? = .60.

In a three-asset portfolio the standard deviation of the portfolio is one third of the square root of the sum of the individual standard deviations.

Exhibit 6-12 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset 1 Asset 2 E =.12 E =.16 E =.04 E =.06 -Given the following weights and expected security returns, calculate the expected return for the portfolio. Weight Expected Return .20 .06 .25 .08 .30 .10 .25 12

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 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?

A good portfolio is a collection of individually good assets.

When is a portfolio considered to be efficient?

Exhibit 6-11 USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) Asset 1 Asset 2 E =0.28 E =0.12 E =0.15 E =0.11 =0.42 =0.58 =0.7 -Refer to Exhibit 6-11. Calculate the expected standard deviation of the two-stock portfolio.

The most import criteria when adding new investments to a portfolio is the

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

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

Filters