Question 1

The transaction costs of investing directly in foreign-currency-denominated assets can be reduced by purchasing American Depositary Shares (ADSs).

Accepted Answer

A) True 
 B)False

Question 2

How can individuals who manage their own portfolios reconcile some of the most useful aspects of traditional portfolio management and modern portfolio theory?

Accepted Answer

Students should include these key points

Question 3

Traditional portfolio management

Accepted Answer

A) concentrates on only the most recent "hot" sectors of the market. 
B) typically centers on interindustry diversification. 
C) uses portfolio betas and standard deviations to minimize risk. 
D) is based on statistical measures to develop the portfolio plan. 
A) concentrates on only the most recent "hot" sectors of the market. 
B) typically centers on interindustry diversification. 
C) uses portfolio betas and standard deviations to minimize risk. 
D) is based on statistical measures to develop the portfolio plan.

Question 4

The efficient frontier

Accepted Answer

A) is represented by the rightmost boundary of the feasible set of portfolios. 
B) represents the best attainable tradeoff between risk and return. 
C) includes all feasible sets of portfolios based on risk and return characteristics. 
D) provides the highest level of risk for the lowest level of return. 
A) is represented by the rightmost boundary of the feasible set of portfolios. 
B) represents the best attainable tradeoff between risk and return. 
C) includes all feasible sets of portfolios based on risk and return characteristics. 
D) provides the highest level of risk for the lowest level of return.

Question 5

By plotting the efficient frontier, investors can find the unique portfolio that is ideal for all investors.

Accepted Answer

A) True 
 B)False

Question 6

Dr.Zweibel's portfolio consists of four stocks: AZMN, 35%, beta 2.4; MKR, 20%, beta 1.6; ABDE, 25%, beta 1.8; and SBUK, 20%, beta 2.1.Compute Dr.Z's portfolio beta.Does he seem to be a conservative or aggressive investor?

Accepted Answer

Portfolio beta = (.35 × 2.4)+ (.20 × 1.6

Question 7

Negatively correlated assets reduce risk more than positively correlated assets.

Accepted Answer

A) True 
 B)False

Question 8

Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

Accepted Answer

A) True 
 B)False

Question 9

Which of the following statements concerning beta are correct?
I.Stock with high standard deviations of returns will always high betas.
II.The higher the beta, the higher the expected return.
III.A beta can be positive, negative, or equal to zero.
IV.A beta of .35 indicates a lower rate of risk than a beta of -0.50.

Accepted Answer

A) II and III only 
B) I and IV only 
C) II, III and IV only 
D) I, II, III and IV 
A) II and III only 
B) I and IV only 
C) II, III and IV only 
D) I, II, III and IV

Question 10

The statement "A portfolio is less than the sum of its parts." means

Accepted Answer

A) it is less expensive to buy a group of assets than to buy those assets individually. 
B) portfolio returns will always be lower than the returns on individual stocks. 
C) a diversified group of assets will be less volatile than the individual assets within the group. 
D) for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components. 
A) it is less expensive to buy a group of assets than to buy those assets individually. 
B) portfolio returns will always be lower than the returns on individual stocks. 
C) a diversified group of assets will be less volatile than the individual assets within the group. 
D) for reasons that are not well understood, the value of a portfolio is less than the sum of the values of its components.

Question 11

Which of the following measures or concepts are deliberately used by modern portfolio theory?
I.beta
II.inter industry diversification
III.efficient frontier
IV.correlation

Accepted Answer

A) II and III only 
B) I and IV only 
C) I, III and IV only 
D) I, II, III and IV 
A) II and III only 
B) I and IV only 
C) I, III and IV only 
D) I, II, III and IV

Question 12

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

Accepted Answer

A) 0.0. 
B) +0.5. 
C) +1.5. 
D) +2.0. 
A) 0.0. 
B) +0.5. 
C) +1.5. 
D) +2.0.

Question 13

A beta of 0.5 means that a stock is half as risky the overall market.

Accepted Answer

A) True 
 B)False

Question 14

A portfolio consisting of four stocks is expected to produce returns of -9%, 11%, 13% and 17%, respectively, over the next four years.What is the standard deviation of these expected returns?

Accepted Answer

A) 10.05% 
B) 11.60% 
C) 8.00% 
D) 33.42% 
A) 10.05% 
B) 11.60% 
C) 8.00% 
D) 33.42%

Question 15

A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

Accepted Answer

A) True 
 B)False

Question 16

A measure of systematic risk is

Accepted Answer

A) standard deviation. 
B) correlation coefficient. 
C) beta. 
D) variance. 
A) standard deviation. 
B) correlation coefficient. 
C) beta. 
D) variance.

Question 17

In the Capital Asset Pricing Model, beta measures a stock's sensitivity to overall market returns.

Accepted Answer

A) True 
 B)False

Question 18

Investing globally offers better diversification than investing only domestically.

Accepted Answer

A) True 
 B)False

Question 19

A negative beta means that on average a stock moves in the opposite direction of the market.

Accepted Answer

A) True 
 B)False

Question 20

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

Accepted Answer

A) I, II and IV only 
B) II and IV only 
C) I, III and IV only 
D) I, II and III only 
A) I, II and IV only 
B) II and IV only 
C) I, III and IV only 
D) I, II and III only

The transaction costs of investing directly in foreign-currency-denominated assets can be reduced by purchasing American Depositary Shares (ADSs).

How can individuals who manage their own portfolios reconcile some of the most useful aspects of traditional portfolio management and modern portfolio theory?

Traditional portfolio management

The efficient frontier

By plotting the efficient frontier, investors can find the unique portfolio that is ideal for all investors.

Dr.Zweibel's portfolio consists of four stocks: AZMN, 35%, beta 2.4; MKR, 20%, beta 1.6; ABDE, 25%, beta 1.8; and SBUK, 20%, beta 2.1.Compute Dr.Z's portfolio beta.Does he seem to be a conservative or aggressive investor?

Negatively correlated assets reduce risk more than positively correlated assets.

Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

The statement "A portfolio is less than the sum of its parts." means

Which of the following measures or concepts are deliberately used by modern portfolio theory? I.beta II.inter industry diversification III.efficient frontier IV.correlation

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

A beta of 0.5 means that a stock is half as risky the overall market.

A portfolio consisting of four stocks is expected to produce returns of -9%, 11%, 13% and 17%, respectively, over the next four years.What is the standard deviation of these expected returns?

A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

A measure of systematic risk is

In the Capital Asset Pricing Model, beta measures a stock's sensitivity to overall market returns.

Investing globally offers better diversification than investing only domestically.

A negative beta means that on average a stock moves in the opposite direction of the market.

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

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters

Exam 5: Modern Portfolio Concepts

The transaction costs of investing directly in foreign-currency-denominated assets can be reduced by purchasing American Depositary Shares (ADSs).

How can individuals who manage their own portfolios reconcile some of the most useful aspects of traditional portfolio management and modern portfolio theory?

Traditional portfolio management

The efficient frontier

By plotting the efficient frontier, investors can find the unique portfolio that is ideal for all investors.

Dr.Zweibel's portfolio consists of four stocks: AZMN, 35%, beta 2.4; MKR, 20%, beta 1.6; ABDE, 25%, beta 1.8; and SBUK, 20%, beta 2.1.Compute Dr.Z's portfolio beta.Does he seem to be a conservative or aggressive investor?

Negatively correlated assets reduce risk more than positively correlated assets.

Adding stocks with higher standard deviations to a portfolio will necessarily increase the portfolio's risk.

The statement "A portfolio is less than the sum of its parts." means

Which of the following measures or concepts are deliberately used by modern portfolio theory? I.beta II.inter industry diversification III.efficient frontier IV.correlation

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

A beta of 0.5 means that a stock is half as risky the overall market.

A portfolio consisting of four stocks is expected to produce returns of -9%, 11%, 13% and 17%, respectively, over the next four years.What is the standard deviation of these expected returns?

A portfolio with a beta of 1.5 will be 50% more volatile than the market portfolio.

A measure of systematic risk is

In the Capital Asset Pricing Model, beta measures a stock's sensitivity to overall market returns.

Investing globally offers better diversification than investing only domestically.

A negative beta means that on average a stock moves in the opposite direction of the market.

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

The Investment Environment

Securities Markets and Transactions

Investment Information and Securities Transactions

Return and Risk

Common Stocks

Analyzing Common Stocks

Stock Valuation

Market Efficiency and Behavioral Finance

Fixed-Income Securities

Bond Valuation

Mutual Funds and Exchange-Traded Funds

Managing Your Own Portfolio

Options: Puts and Calls

Futures Markets and Securities

Filters