Question 1

Exhibit 6-4
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $\begin{array}{c}
\begin{array}{cc}
\text { Asset }(\mathrm{A}) & \text { Asset }(\mathrm{B}) \
\hline \mathrm{E}\left(\mathrm{R}_{\mathrm{A}}\right)=10 \% & \mathrm{E}\left(\mathrm{R}_{\mathrm{B}}\right)=8 \% \
\left(\sigma_{\mathrm{A}}\right)=6 \% & \left(\sigma_{\mathrm{B}}\right)=5 \% \
\mathrm{~W}_{\mathrm{A}}=0.3 & \mathrm{~W}_{\mathrm{B}}=0.7
\end{array}\
\mathrm{COV}_{\mathrm{AB}}=0.0008
\end{array}$
-Refer to Exhibit 6-4. 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)  8.6% 
B)  8.1% 
C)  9.3% 
D)  10.2% 
E)  11.6%

Question 2

Risk is defined as the uncertainty of future outcomes.

Accepted Answer

A) True 
 B)False

Question 3

For a two-stock portfolio containing Stocks i and j, the correlation coefficient of returns (r??) is equal to the square root of the covariance (cov??).

Accepted Answer

A) True 
 B)False

Question 4

What is the standard deviation of an equally weighted portfolio of two stocks with a covariance of 0.009, if the standard deviation of the first stock is 15% and the standard deviation of the second stock is 20%?

Accepted Answer

A)  2.0% 
B)  2.1% 
C)  7.8% 
D)  14.2% 
E)  14.7%

Question 5

All of the following are assumptions of the Markowitz model except

Accepted Answer

A)  Risk is measured based on the variability of returns. 
B)  Investors maximize one-period expected utility. 
C)  Investors' utility curves demonstrate properties of diminishing marginal utility of wealth. 
D)  Investors base decisions solely on expected return and time. 
E)  All of the above.

Exam 6: An Introduction to Portfolio Management

Risk is defined as the uncertainty of future outcomes.

For a two-stock portfolio containing Stocks i and j, the correlation coefficient of returns (r??) is equal to the square root of the covariance (cov??).

What is the standard deviation of an equally weighted portfolio of two stocks with a covariance of 0.009, if the standard deviation of the first stock is 15% and the standard deviation of the second stock is 20%?

All of the following are assumptions of the Markowitz model except