Question 1

An indifference curve shows:

Accepted Answer

A) the one most desirable portfolio for an investor. 
B) all combinations of portfolios that are equally desirable to an investor. 
C) all combinations of portfolios that are equally desirable to all investors. 
D) the one most desirable portfolio for all investors. 
A) the one most desirable portfolio for an investor. 
B) all combinations of portfolios that are equally desirable to an investor. 
C) all combinations of portfolios that are equally desirable to all investors. 
D) the one most desirable portfolio for all investors. B

Question 2

Which of the following would not be considered a source of systematic risk?

Accepted Answer

A) A hostile takeover 
B) An increase in inflation 
C) A decrease in GDP 
D) A panic on Wall Street 
A) A hostile takeover 
B) An increase in inflation 
C) A decrease in GDP 
D) A panic on Wall Street A

Question 3

In the past 20 years,the benefits of international diversification have:

Accepted Answer

A) increased. 
B) decreased. 
C) disappeared. 
D) become more volatile. 
A) increased. 
B) decreased. 
C) disappeared. 
D) become more volatile. B

Question 4

Real estate has never been shown to be positively correlated with the performance of stocks.

Accepted Answer

A) True 
 B)False

Question 5

Which of the following is true regarding the Markowitz model?

Accepted Answer

A) It fully addresses the use of leverage. 
B) The inputs to the model are the portfolio asset weights. 
C) An investor's optimal portfolio occurs where the investor's indifference curve is tangent to the efficient frontier. 
D) Markowitz diversification is inefficient diversification. 
A) It fully addresses the use of leverage. 
B) The inputs to the model are the portfolio asset weights. 
C) An investor's optimal portfolio occurs where the investor's indifference curve is tangent to the efficient frontier. 
D) Markowitz diversification is inefficient diversification.

Question 6

Asset allocation is one of the most widely used applications of:

Accepted Answer

A) the Capital Asset Pricing Model. 
B) random diversification. 
C) passive portfolio approach. 
D) modern portfolio theory. 
A) the Capital Asset Pricing Model. 
B) random diversification. 
C) passive portfolio approach. 
D) modern portfolio theory.

Question 7

Asset allocation explains less than 50 percent of the variance in quarterly returns for a typical pension fund.

Accepted Answer

A) True 
 B)False

Question 8

Which of the following is not true regarding Markowitz portfolio theory?The Markowitz model:

Accepted Answer

A) is considered a three-parameter model. 
B) implies that no portfolio on the efficient frontier dominates any other portfolio on the efficient frontier. 
C) is cumbersome to work with due to the large variance-covariance matrix needed for a set of stocks. 
D) generates an entire set,or efficient frontier,of portfolios. 
A) is considered a three-parameter model. 
B) implies that no portfolio on the efficient frontier dominates any other portfolio on the efficient frontier. 
C) is cumbersome to work with due to the large variance-covariance matrix needed for a set of stocks. 
D) generates an entire set,or efficient frontier,of portfolios.

Question 9

Different investors estimate the inputs to the Markowitz model differently because:

Accepted Answer

A) every investor has his/her own risk/return preferences. 
B) every investor has access to different information about securities. 
C) there is an inherent uncertainty in security analysis. 
D) there is a random selection process used by individual investors. 
A) every investor has his/her own risk/return preferences. 
B) every investor has access to different information about securities. 
C) there is an inherent uncertainty in security analysis. 
D) there is a random selection process used by individual investors.

Question 10

The efficient set of portfolios represents:

Accepted Answer

A) investor preferences,whereas indifference curves reflect portfolio possibilities. 
B) portfolio possibilities,whereas indifference curves reflect investor preferences. 
C) investor risk,whereas indifference curves reflect portfolio return. 
D) portfolio return,whereas indifference curves reflect investor preferences. 
A) investor preferences,whereas indifference curves reflect portfolio possibilities. 
B) portfolio possibilities,whereas indifference curves reflect investor preferences. 
C) investor risk,whereas indifference curves reflect portfolio return. 
D) portfolio return,whereas indifference curves reflect investor preferences.

Question 11

Based on recent research,it seems reasonable that approximately 10 securities are needed to ensure adequate diversification.

Accepted Answer

A) True 
 B)False

Question 12

The optimal portfolio is the efficient portfolio with the

Accepted Answer

A) lowest risk. 
B) highest risk. 
C) highest utility. 
D) least investment. 
A) lowest risk. 
B) highest risk. 
C) highest utility. 
D) least investment.

Question 13

Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by:

Accepted Answer

A) aggressive investors. 
B) conservative investors. 
C) risk-averse investors. 
D) defensive investors. 
A) aggressive investors. 
B) conservative investors. 
C) risk-averse investors. 
D) defensive investors.

Question 14

Bob holds a portfolio of 20 stocks from different industries,whereas Sharon holds only one stock in her portfolio.Assuming they each add a stock to their portfolio,which of the following is most likely? Relative to Bob's portfolio,Sharon's portfolio will experience the:

Accepted Answer

A) larger increase in total risk. 
B) larger increase in return. 
C) larger decrease in total risk. 
D) larger decrease in market risk. 
A) larger increase in total risk. 
B) larger increase in return. 
C) larger decrease in total risk. 
D) larger decrease in market risk.

Question 15

The Markowitz model assumes that investors are "risk averse",which means that they:

Accepted Answer

A) will not take a "fair gamble." 
B) will take a "fair gamble." 
C) will take a "fair gamble" fifty percent of the time. 
D) will never assume investment risk. 
A) will not take a "fair gamble." 
B) will take a "fair gamble." 
C) will take a "fair gamble" fifty percent of the time. 
D) will never assume investment risk.

Question 16

A major assumption of the Markowitz model is that investors base their decisions strictly on expected return and risk.

Accepted Answer

A) True 
 B)False

Question 17

Academic research shows asset allocation decisions explain approximately 90% of the variation in returns in a portfolio,whereas individual security analysis,including "stock picking," explains only about 10%.

Accepted Answer

A) True 
 B)False

Question 18

A well-diversified portfolio will typically consist of a mix of small,mid,and large cap stocks,both U.S.and foreign,as well as corporate and U.S.Treasury bonds,real estate,and commodities.

Accepted Answer

A) True 
 B)False

Question 19

Which of the following best approximates the typical correlation between the S&P 500 and the

Accepted Answer

A) -50% 
B) 0% 
C) 25% 
D) 70% 
A) -50% 
B) 0% 
C) 25% 
D) 70%

Question 20

Under the Markowitz model,investors:

Accepted Answer

A) are assumed to be risk-seekers. 
B) are not allowed to use leverage. 
C) are assumed to be institutional investors. 
D) are always better off if they select portfolios consisting of multiple securities. 
A) are assumed to be risk-seekers. 
B) are not allowed to use leverage. 
C) are assumed to be institutional investors. 
D) are always better off if they select portfolios consisting of multiple securities.

Exam 8: Portfolio Selection

An indifference curve shows:

Which of the following would not be considered a source of systematic risk?

In the past 20 years,the benefits of international diversification have:

Real estate has never been shown to be positively correlated with the performance of stocks.

Which of the following is true regarding the Markowitz model?

Asset allocation is one of the most widely used applications of:

Asset allocation explains less than 50 percent of the variance in quarterly returns for a typical pension fund.

Which of the following is not true regarding Markowitz portfolio theory?The Markowitz model:

Different investors estimate the inputs to the Markowitz model differently because:

The efficient set of portfolios represents:

Based on recent research,it seems reasonable that approximately 10 securities are needed to ensure adequate diversification.

The optimal portfolio is the efficient portfolio with the

Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by:

Bob holds a portfolio of 20 stocks from different industries,whereas Sharon holds only one stock in her portfolio.Assuming they each add a stock to their portfolio,which of the following is most likely? Relative to Bob's portfolio,Sharon's portfolio will experience the:

The Markowitz model assumes that investors are "risk averse",which means that they:

A major assumption of the Markowitz model is that investors base their decisions strictly on expected return and risk.

Academic research shows asset allocation decisions explain approximately 90% of the variation in returns in a portfolio,whereas individual security analysis,including "stock picking," explains only about 10%.

A well-diversified portfolio will typically consist of a mix of small,mid,and large cap stocks,both U.S.and foreign,as well as corporate and U.S.Treasury bonds,real estate,and commodities.

Which of the following best approximates the typical correlation between the S&P 500 and the

Under the Markowitz model,investors:

Understanding Investments

Investment Alternatives

Indirect Investing

Securities Markets and Market Indexes

How Securities Are Traded

The Risks and Returns From Investing

Portfolio Theory

Asset Pricing Models

Common Stock Valuation

Common Stocks: Analysis and Strategy

Market Efficiency

Economy Market Analysis

Industry Analysis

Company Analysis

Technical Analysis

Bond Yields

Bonds: Analysis and Strategy

Options

Futures

Portfolio Management

Evaluation of Investment Performance

Filters