Question 1

Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0.This information indicates that

Accepted Answer

A)   security A has the highest degree of market risk.
B)   security B has 20% more systematic risk than the market.
C)   security C has the highest degree of market risk.
D)   security C would be the best investment if a strong bull market is expected.

Question 2

Investing globally offers better diversification than investing only domestically.

Accepted Answer

A) True 
 B)False

Question 3

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.

Question 4

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Accepted Answer

A) True 
 B)False

Question 5

The market surrogate is always assigned a beta of 1.0.

Accepted Answer

A) True 
 B)False

Question 6

Negatively correlated assets reduce risk more than positively correlated assets.

Accepted Answer

A) True 
 B)False

Question 7

A stock's beta value is a measure of

Accepted Answer

A)   interest rate risk.
B)   total risk.
C)   systematic risk.
D)   diversifiable risk.

Question 8

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

Accepted Answer

A) True 
 B)False

Question 9

The Dow Jones Industrial Average of thirty stocks is a suitable proxy for market returns in the CAPM.

Accepted Answer

A) True 
 B)False

Question 10

Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?

Accepted Answer

A)   inflation risk
B)   labor problems
C)   materials shortages
D)   product recalls

Question 11

Portfolio objectives should be established independently of tax considerations.

Accepted Answer

A) True 
 B)False

Question 12

In designing a portfolio, the only relevant risk is

Accepted Answer

A)   total risk.
B)   unsystematic risk.
C)   event risk.
D)   nondiversifiable risk.

Question 13

Explain the relationship between correlation, diversification, and risk reduction.

Accepted Answer

Correlation is a statistic that measures...

Question 14

Explain the efficient frontier as it relates to the utility function of an individual investor.

Accepted Answer

Students should include these key points...

Question 15

The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

Accepted Answer

A) True 
 B)False

Question 16

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.

Exam 5: Modern Portfolio Concepts

Explain the efficient frontier as it relates to the utility function of an individual investor.

Correct Answer
verified
Students should include these key points...
View Answer

Investing globally offers better diversification than investing only domestically.

Correct Answer
verified

In designing a portfolio, the only relevant risk is

Correct Answer
verified

Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0.This information indicates that

Correct Answer
verified

The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

Correct Answer
verified

Portfolio objectives should be established independently of tax considerations.

Correct Answer
verified

Explain the relationship between correlation, diversification, and risk reduction.

Correct Answer
verified
Correlation is a statistic that measures...
View Answer

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Correct Answer
verified

The Dow Jones Industrial Average of thirty stocks is a suitable proxy for market returns in the CAPM.

Correct Answer
verified

Negatively correlated assets reduce risk more than positively correlated assets.

Correct Answer
verified

The market surrogate is always assigned a beta of 1.0.

Correct Answer
verified

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

Correct Answer
verified

Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?

Correct Answer
verified

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

Correct Answer
verified

The efficient frontier

Correct Answer
verified

A stock's beta value is a measure of

Correct Answer
verified

Exam 5: Modern Portfolio Concepts

Explain the efficient frontier as it relates to the utility function of an individual investor.

Correct AnswerverifiedStudents should include these key points...View AnswerShow Answer

Investing globally offers better diversification than investing only domestically.

Correct AnswerverifiedShow Answer

In designing a portfolio, the only relevant risk is

Correct AnswerverifiedShow Answer

Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0.This information indicates that

Correct AnswerverifiedShow Answer

The CAPM estimates the required rate of return on a stock held as part of a well diversified portfolio.

Correct AnswerverifiedShow Answer

Portfolio objectives should be established independently of tax considerations.

Correct AnswerverifiedShow Answer

Explain the relationship between correlation, diversification, and risk reduction.

Correct AnswerverifiedCorrelation is a statistic that measures...View AnswerShow Answer

Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

Correct AnswerverifiedShow Answer

The Dow Jones Industrial Average of thirty stocks is a suitable proxy for market returns in the CAPM.

Correct AnswerverifiedShow Answer

Negatively correlated assets reduce risk more than positively correlated assets.

Correct AnswerverifiedShow Answer

The market surrogate is always assigned a beta of 1.0.

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Which one of the following types of risk cannot be effectively eliminated through portfolio diversification?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

The efficient frontier

Correct AnswerverifiedShow Answer

A stock's beta value is a measure of

Correct AnswerverifiedShow Answer

Correct Answer
verified
Students should include these key points...
View Answer

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified
Correlation is a statistic that measures...
View Answer

Correct Answer
verified

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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