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What is the expected return of the three-stock portfolio described below? What is the expected return of the three-stock portfolio described below? A) 12.04% B) 12.83% C) 13.07% D) 15.89% E) 17.91%


A) 12.04%
B) 12.83%
C) 13.07%
D) 15.89%
E) 17.91%

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.15. What is the expected return of a portfolio of two risky assets if the expected return E(R<sub>i</sub>) , standard deviation ( \sigma i) , covariance (COV<sub>i,j</sub>) , and asset weight (W<sub>i</sub>) are as shown above? A) 13.8% B) 14.6% C) 15.0% D) 15.2% E) 16.8% -Refer to Exhibit 6.15. What is the expected return of a portfolio of two risky assets if the expected return E(Ri) , standard deviation ( σ\sigma i) , covariance (COVi,j) , and asset weight (Wi) are as shown above?


A) 13.8%
B) 14.6%
C) 15.0%
D) 15.2%
E) 16.8%

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.6. What is the standard deviation of this portfolio? A) 6.08% B) 5.89% C) 7.06% D) 6.54% E) 7.26% -Refer to Exhibit 6.6. What is the standard deviation of this portfolio?


A) 6.08%
B) 5.89%
C) 7.06%
D) 6.54%
E) 7.26%

Correct Answer

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What is the expected return of the three-stock portfolio described below? What is the expected return of the three-stock portfolio described below? A) 21.33% B) 12.50% C) 32.00% D) 15.75% E) 16.80%


A) 21.33%
B) 12.50%
C) 32.00%
D) 15.75%
E) 16.80%

Correct Answer

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The Markowitz model is based on several assumptions regarding investor behavior. Which of the following is NOT such any assumption?


A) Investors consider each investment alternative as being represented by a probability distribution of expected returns over some holding period.
B) Investors maximize one-period expected utility.
C) Investors estimate the risk of the portfolio on the basis of the variability of expected returns.
D) Investors base decisions solely on expected return and risk.
E) None of these are correct (that is, all are assumptions of the Markowitz model) .

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed. USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed. -Refer to Exhibit 6.14. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B? A) 35% B) 42% C) 58% D) 65% E) 72% -Refer to Exhibit 6.14. What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?


A) 35%
B) 42%
C) 58%
D) 65%
E) 72%

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.5. What is the expected return of a portfolio of two risky assets if the expected return E(R<sub>i</sub>) , standard deviation ( \sigma i) , covariance (COV<sub>i,j</sub>) , and asset weight (W<sub>i</sub>) are as shown above? A) 8.0% B) 12.2% C) 7.4% D) 9.1% E) 11.6% -Refer to Exhibit 6.5. What is the expected return of a portfolio of two risky assets if the expected return E(Ri) , standard deviation ( σ\sigma i) , covariance (COVi,j) , and asset weight (Wi) are as shown above?


A) 8.0%
B) 12.2%
C) 7.4%
D) 9.1%
E) 11.6%

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.2. What is the standard deviation of this portfolio? A) 5.45% B) 18.64% C) 20.0% D) 22.5% E) 13.65% -Refer to Exhibit 6.2. What is the standard deviation of this portfolio?


A) 5.45%
B) 18.64%
C) 20.0%
D) 22.5%
E) 13.65%

Correct Answer

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Which of the following statements about the correlation coefficient is FALSE?


A) The values range between -1 to +1.
B) A value of +1 implies that the returns for the two stocks move together in a completely linear manner.
C) A value of -1 implies that the returns move in a completely opposite direction.
D) A value of zero means that the returns are independent.
E) A value of zero means that the returns had no linear relationship.

Correct Answer

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What does WRF = - 0.50 mean?


A) The investor can borrow money at the risk-free rate.
B) The investor can lend money at the current market rate.
C) The investor can borrow money at the current market rate.
D) The investor can borrow money at the prime rate of interest.
E) The investor can lend money at the prime rate of interest.

Correct Answer

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The portfolios on the capital market line are combinations of the risk-free asset and the market portfolio.

Correct Answer

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The correlation coefficient between the market return and a risk-free asset would


A) be + ∞\infty .
B) be - ∞\infty .
C) be +1.
D) be -1.
E) be zero.

Correct Answer

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All portfolios on the capital market line are


A) perfectly positively correlated.
B) perfectly negatively correlated.
C) unique from each other.
D) weakly correlated.
E) unrelated except that they contain the risk-free asset.

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.4. What is the standard deviation of this portfolio? A) 5.02% B) 3.88% C) 6.21% D) 4.04% E) 5.64% -Refer to Exhibit 6.4. What is the standard deviation of this portfolio?


A) 5.02%
B) 3.88%
C) 6.21%
D) 4.04%
E) 5.64%

Correct Answer

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The market portfolio consists of all


A) New York Stock Exchange stocks.
B) high grade stocks and bonds.
C) stocks and bonds.
D) U.S. and non-U.S. stocks and bonds.
E) risky assets.

Correct Answer

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USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) -Refer to Exhibit 6.1. What is the expected return of a portfolio of two risky assets if the expected return E(R<sub>i</sub>) , standard deviation ( \sigma i) , covariance (COV<sub>i,j</sub>) , and asset weight (W<sub>i</sub>) are as shown above? A) 8.79% B) 12.5% C) 13.75% D) 7.72% E) 12% -Refer to Exhibit 6.1. What is the expected return of a portfolio of two risky assets if the expected return E(Ri) , standard deviation ( σ\sigma i) , covariance (COVi,j) , and asset weight (Wi) are as shown above?


A) 8.79%
B) 12.5%
C) 13.75%
D) 7.72%
E) 12%

Correct Answer

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In a two-stock portfolio, if the correlation coefficient between two stocks were to decrease over time, everything else remaining constant, the portfolio's risk would


A) decrease.
B) remain constant.
C) increase.
D) fluctuate positively and negatively.
E) be a negative value.

Correct Answer

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A completely diversified portfolio would have a correlation with the market portfolio that is


A) equal to zero because it has only unsystematic risk.
B) equal to one because it has only systematic risk.
C) less than zero because it has only systematic risk.
D) less than one because it has only unsystematic risk.
E) less than one because it has only systematic risk.

Correct Answer

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In a three-asset portfolio, the standard deviation of the portfolio is one-third of the square root of the sum of the individual standard deviations.

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The capital market line is the tangent line between the risk-free rate of return and the efficient frontier.

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