Exam 5: Modern Portfolio Concepts

Small company stocks are yielding 15.7% while the U.S. Treasury bill has a 4.3% yield and a bank savings account is yielding 3.8%. What is the risk premium on small company stocks?

The market rate of return increased by 8% while the rate of return on XYZ stock increased by 4%. The beta of XYZ stock is

Which of the following guidelines are appropriate for inclusion in a portfolio management policy? I. Ddiversify among different types of securities and across industry and geographic lines. II. Determine the risk level and financial situation of the individual investor. III. Utilize beta to help align the portfolio to the risk level of the investor. IV. Minimize the standard deviation of each security in the portfolio.

The stock of ABC, Inc. has a beta of 1.10. The market rate of return is expected to increase in value by 5%. ABC stock should

Explain the relationship between correlation, diversification, and risk reduction.

Beta can be defined as the slope of the line that explains the relationship between

Correlation is a measure of the relationship between two series of numbers.

When the stock market has bottomed out and is beginning to recover, the best portfolio to own is the one with a beta of

Investing in emerging markets is an effective means of diversifying a U.S. portfolio.

The Franko Company has a beta of 1.09. By what percent will the rate of return on the stock of Franko Company increase if the market rate of return rises by 3%?

Amanda has the following portfolio of assets. What is the beta of Amanda's portfolio?

Returns on the stock of First Boston and Midas Metals for the years 2010-2013 are shown below. a. Compute the average annual return for each stock and a portfolio consisting of 50% First Boston and 50% Midas. b. Compute the standard deviation for each stock and the portfolio. c. Are the stocks positively or negatively correlated and what is the effect on risk?

Portfolios falling to the left of the efficient frontier

Which of the following will lower a portfolio's beta? I. Diversify among different types of securities and across industry and geographic lines. II. Add investments with low betas to the portfolio. III. Hold more cash or Treasury Bills in the portfolio. IV. Reduce the percentage of the portfolio invested in high beta securities.

The efficient frontier

Estimates of a stock's beta may vary depending on I. when the estimate was made II. the standard deviation of the stock's returns III. how many months of returns were used to estimate the beta IV. the index used to represent market returns.

Which of the following best describes the relationship between a stock's beta and the standard deviation of the stock's returns?

A portfolio that offers the lowest risk for a given level of return is known as an efficient portfolio.

Both modern portfolio theory and traditional portfolio management result in diversified portfolios, but they take different approaches to diversification.

The optimal portfolio for an individual investor is represented by the point that lies on the