Exam 7: Portfolio Selection Problem

The addition to expected terminal wealth offered by a risky investment over the certain investment is termed a(n)

_____ wealth is the value of an investor's portfolio at the end of a holding period.

Portfolio A has an expected return of 16% with a standard deviation of 8%. Portfolio B has an expected return of 12% with a standard deviation of 7%.

Which one of the following is a better argument than the three against the risk aversion assumption of the Markowitz theory?

______ curve represents a set of risk and expected return combinations that provide an investor with the same level of utility.

When it is said an investor is risk averse, it means that the investor will

The correlation coefficient is the product of the correlation between two random variables and

____ is a statistical measure of the relationship between two random variables such as the returns on stock x and stock y.

The development of an investor's indifference curves is based on

The covariance between two random variables is equal to the ______ between the return on security I and the return on security j.

Assuming investor nonsatiation, an investor

Modern Portfolio Theory assumes investors are

A condition whereby investors are assumed to always prefer higher levels to lower levels of terminal wealth is known as

An investor is indifferent between receiving $8,000 or a gamble where there is a 50% chance of getting $0 and a 50% chance of getting $20,000. The investor is

To describe the random variable of the portfolio rate of return, the investor needs

The ____ is the middle outcome of the distribution when the possible values of the random variable are arranged according to size.

IIf an investor invests 50% in IBM which returned 20%; 30% in Texaco which returned –10%; and 20% in Motorola which returned 5%, what is the portfolio rate of return?

Studies of investor behavior indicate that the majority of investors

A risk seeking investor wishes to move his indifference curves to the

An investor is indifferent between receiving $10,000 or a gamble where there is a 50% chance of getting SO and a 50% chance of getting $20,000. The investor is