Exam 5: Modern Portfolio Concepts

If the actual rate of return on an investment portfolio is constant from year to year, the standard deviation of that portfolio is zero.

Marco owns the following portfolio of stocks.What is the expected return on his portfolio?

The best stock to own when the stock market is at a peak and is expected to decline in value is one with a beta of

Analysts commonly use the ________ to measure market return.

American investors have several alternatives available to diversify their portfolios internationally.In terms of transaction costs, which of the alternatives below is least attractive?

Combining uncorrelated assets will

Traditional portfolio managers prefer well-known companies because I.stocks of well-known firms tend to be less risky than stocks of lesser-known firms. II.individuals are more apt to purchase a mutual fund if it contains stocks of well-known firms. III.window dressing encourages the purchase of well-known stocks. IV.institutional investors tend to exhibit "herd-like" behavior.

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

The Capital Asset Pricing Model (CAPM)includes which of the following in its base assumptions? I.Investors should earn a minimum return equal to the risk-free rate. II.Investors in the market should earn a return greater than the return on the overall market. III.Investors should be rewarded for the amount of risk they assume. IV.Investors should earn a return located above the Security Market Line.

Stock of Gould and Silber Inc.has a beta of -1.If the market declines by 10%, Gould and Silber would be expected to

Alexis has inherited $120,000 from her grandmother's estate.She has decided to invest $10,000 in each of 12 different industries.Because she has lower than average risk tolerance, she carefully seeks out stocks so that her portfolio will have a weighted average beta of .80.

Most assets show a slight degree of negative correlation.

Which of the following represent unsystematic risks? I.the president of a company suddenly resigns II.the economy goes into a recessionary period III.a company's product is recalled for defects IV.the Federal Reserve unexpectedly changes interest rates

The risk premium to be used in the Capital Asset Pricing Model is calculated as (rrf-rm).

Studies have shown that investing in different industries as well as different countries reduces portfolio risk.

The Dow Jones Industrial Average of thirty stocks is customarily used to represent market returns in the CAPM.

Portfolio objectives should be established before beginning to invest.

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

According to the CAPM, the required rate of a return on a stock can be estimated using only beta and the risk-free rate.

According to MSN money, the stock of Orange Corporation has a beta of 1.5, but according to Yahoo Finance it is 1.75.The expected rate of return on the market is 12% and the risk free rate is 2%.What is the difference between the required rates of return calculated using each of these betas?