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Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $89,100. Stock X is worth $57,800. What is the portfolio weight of stock Y?


A) .351
B) .390
C) .523
D) .610
E) .649

Correct Answer

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What is the standard deviation of the returns on this stock? What is the standard deviation of the returns on this stock? A) 3.33 percent B) 4.62 percent C) 5.01 percent D) 5.77 percent E) 6.06 percent


A) 3.33 percent
B) 4.62 percent
C) 5.01 percent
D) 5.77 percent
E) 6.06 percent

Correct Answer

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You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a normal economy. If the probability of a booming economy decreases, your expected return will:


A) decrease.
B) either remain constant or decrease.
C) remain constant.
D) increase.
E) either remain constant or increase.

Correct Answer

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Travis has a portfolio consisting of two stocks, A and B, which is valued at $42,900. Stock A is worth $23,900. What is the portfolio weight of stock B?


A) .428
B) .443
C) .449
D) .452
E) .454

Correct Answer

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A group of stocks and bonds held by an investor is called which one of the following?


A) weights
B) grouping
C) basket
D) portfolio
E) bundle

Correct Answer

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Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 21 percent per year. The correlation between stock A and stock B is .32. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 60 percent. What is your portfolio standard deviation?


A) 14.87 percent
B) 15.59 percent
C) 16.91 percent
D) 17.45 percent
E) 18.03 percent

Correct Answer

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Correlation is the:


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.

Correct Answer

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An efficient portfolio is a portfolio that does which one of the following?


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

Correct Answer

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You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock


A) The weights will be the probability of occurrence for each economic state.
B) Each stock will have a weight of 20 percent for a total of 100 percent.
C) The weights will decline steadily from Stock A to Stock E
D) The weights will be based on the amount invested in each stock as a percentage of the total amount invested.
E) The weights will be based on a combination of the dollar amounts invested as well as the economic probabilities.

Correct Answer

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The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information? The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information? A) 5.88 percent B) 5.95 percent C) 6.10 percent D) 6.23 percent E) 6.27 percent


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

Correct Answer

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An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy. The overall expected return on the security is 8.88 percent. Given there are only two states of the economy, what is the probability that the economy will boom?


A) 28 percent
B) 33 percent
C) 36 percent
D) 41 percent
E) 45 percent

Correct Answer

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You have a portfolio which is comprised of 65 percent of stock A and 35 percent of stock B. What is the expected rate of return on this portfolio? You have a portfolio which is comprised of 65 percent of stock A and 35 percent of stock B. What is the expected rate of return on this portfolio? A) 5.45 percent B) 6.62 percent C) 7.14 percent D) 7.60 percent E) 8.22 percent


A) 5.45 percent
B) 6.62 percent
C) 7.14 percent
D) 7.60 percent
E) 8.22 percent

Correct Answer

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If two assets have a zero correlation, their returns will:


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.

Correct Answer

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There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent. What is the risk-free rate if the risk premium on the stock is 8.60 percent?


A) 4.20 percent
B) 4.80 percent
C) 5.20 percent
D) 5.40 percent
E) 5.80 percent

Correct Answer

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You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B. What is the variance of this portfolio? You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B. What is the variance of this portfolio? A) 57.86 B) 61.05 C) 66.83 D) 70.14 E) 75.93


A) 57.86
B) 61.05
C) 66.83
D) 70.14
E) 75.93

Correct Answer

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Foreign securities are generally considered to be more risky than domestic securities. Given this assumption, explain how adding foreign securities into a domestic portfolio can affect the Markowitz efficient portfolios.

Correct Answer

Answered by ExamLex AI

Answered by ExamLex AI

Adding foreign securities into a domesti...

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You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B. What is the expected rate of return on this portfolio? You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B. What is the expected rate of return on this portfolio? A) 9.46 percent B) 9.88 percent C) 10.03 percent D) 11.79 percent E) 12.40 percent


A) 9.46 percent
B) 9.88 percent
C) 10.03 percent
D) 11.79 percent
E) 12.40 percent

Correct Answer

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You combine a set of assets using different weights such that you produce the following results. You combine a set of assets using different weights such that you produce the following results. Which one of these portfolios CANNOT be a Markowitz efficient portfolio? A) A B) B C) C D) D E) E Which one of these portfolios CANNOT be a Markowitz efficient portfolio?


A) A
B) B
C) C
D) D
E) E

Correct Answer

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Terry has a portfolio comprised of two individual securities. Which one of the following computations that he might do is NOT a weighted average?


A) correlation between the securities
B) individual security expected return
C) portfolio expected return
D) portfolio variance
E) portfolio beta

Correct Answer

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Which one of the following statements is correct?


A) A portfolio variance is a weighted average of the variances of the individual securities which comprise the portfolio.
B) A portfolio variance is dependent upon the portfolio's asset allocation.
C) A portfolio variance is unaffected by the correlations between the individual securities held in the portfolio.
D) The portfolio variance must be greater than the lowest variance of any of the securities held in the portfolio.
E) The portfolio variance must be less than the lowest variance of any of the securities held in the portfolio.

Correct Answer

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