Exam 11: Diversification and Risky Asset Allocation

A) 5.88 percent
B) 5.95 percent
C) 6.10 percent
D) 6.23 percent
E) 6.27 percent

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A) 8.89 percent
B) 9.85 percent
C) 10.64 percent
D) 11.84 percent
E) 12.92 percent

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C

A) squared measure of a security's total risk.
B) extent to which the returns on two assets move together.
C) measurement of the systematic risk contained in an asset.
D) daily return on an asset compared to its previous daily return.
E) spreading of an investment across a number of assets.

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B

A) .226
B) .239
C) .245
D) .251
E) .257

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A) 11 percent
B) 15 percent
C) 21 percent
D) 24 percent
E) 27 percent

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A) 4.67 percent
B) 9.97 percent
C) 7.23 percent
D) 8.83 percent
E) 10.42 percent

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A) offers the highest return for the lowest possible cost
B) provides an evenly weighted portfolio of diverse assets
C) eliminates all risk while providing an expected positive rate of return
D) lies on the vertical axis when graphing expected returns against standard deviation
E) offers the highest return for a given level of risk

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Adding foreign securities into a domesti...

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A) 3.47 percent
B) 6.48 percent
C) 11.92 percent
D) 14.67 percent
E) 18.22 percent

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A) strong positive
B) slightly positive
C) slightly negative
D) strongly negative
E) zero

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A) perfectly positive
B) positive
C) negative
D) perfectly negative
E) uncorrelated

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A) 1.98 percent
B) 2.06 percent
C) 2.13 percent
D) 2.27 percent
E) 2.30 percent

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A) 10.70 percent
B) 10.87 percent
C) 11.13 percent
D) 12.11 percent
E) 12.80 percent

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There are several reasons why I might advise some investors to consider investing in a portfolio other than the minimum variance portfolio. Firstly, the minimum variance portfolio is designed to minimize risk, but it may not necessarily maximize returns. Some investors may have a higher risk tolerance and are willing to take on more risk in exchange for potentially higher returns. In this case, I would advise them to consider a portfolio that offers a higher expected return, even if it comes with slightly higher risk. Additionally, the minimum variance portfolio may not align with the specific investment goals and preferences of each individual investor. Some investors may have specific sector preferences or ethical considerations that they want to incorporate into their portfolio. In these cases, I would advise them to consider a portfolio that aligns with their specific investment criteria, even if it deviates from the minimum variance portfolio. Furthermore, the minimum variance portfolio is based on historical data and assumptions about risk and return. However, these assumptions may not hold true in the future, especially in rapidly changing market conditions. Therefore, I would advise some investors to consider a portfolio that takes into account current market conditions and potential future trends, even if it means deviating from the minimum variance portfolio. Overall, while the minimum variance portfolio is a valuable tool for managing risk, it may not be the best fit for every investor. By considering individual risk tolerance, investment goals, and market conditions, I would advise some investors to explore portfolios that offer different risk-return trade-offs than the minimum variance portfolio.

A) Because there is an ideal mix, all investors should use the same asset allocation for their portfolios.
B) The minimum variance portfolio will have a 50/50 asset allocation between stocks and bonds.
C) Asset allocation affects the expected return but not the risk level of a portfolio.
D) There is an ideal asset allocation between stocks and bonds given a specified level of risk.
E) Asset allocation should play a minor role in portfolio construction.

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A) beta.
B) standard deviation.
C) balance.
D) weight.
E) variance.

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A) always move in the same direction by the same amount.
B) always move in the same direction but not necessarily by the same amount.
C) move randomly and independently of each other.
D) always move in opposite directions but not necessarily by the same amount.
E) always move in opposite directions by the same amount.

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A) -100
B) -1
C) 0
D) 1
E) 100

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