Exam 11: Diversification and Risky Asset Allocation

How will the returns on two assets react if those returns have a perfect positive correlation? I.move in the same direction II.move in opposite directions III.move by the same amount IV.move by either equal or unequal amounts

What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset called?

What is the expected return on this stock given the following information?

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

Assume the returns on Stock X were positive in January,February,April,July,and November.The other months the returns on Stock X were negative.The returns on Stock Y were positive in January,April,May,July,August,and October and negative the remaining months.Which one of the following correlation coefficients best describes the relationship between Stock X and Stock Y?

Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 8 percent per year.The correlation between stock A and stock B is .40.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

What is the variance of the expected returns on this stock?

You are graphing the investment opportunity set for a portfolio of two securities with the expected return on the vertical axis and the standard deviation on the horizontal axis.If the correlation coefficient of the two securities is +1,the opportunity set will appear as which one of the following shapes?

You have a portfolio which is comprised of 70 percent of stock A and 30 percent of stock B.What is the ex return on this portfolio?

If the future return on a security is known with absolute certainty,then the risk premium on that security should be equal to:

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:

You own three securities.Security A has an expected return of 11 percent as compared to 14 percent for Security B and 9 percent for Security C.The expected inflation rate is 4 percent and the nominal risk-free rate is 5 percent.Which one of the following statements is correct?

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

Diversification is investing in a variety of assets with which one of the following as the primary goal?

What is the variance of the returns on a security given the following information?

What is the variance of the expected returns on this stock?

You own a stock that will produce varying rates of return based upon the state of the economy.Which one of the following will measure the risk associated with owning that stock?

An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy.The overall expected return on the security is 5.45 percent.Given there are only two states of the economy,what is the probability that the economy will boom?

A portfolio consists of the following securities.What is the portfolio weight of stock X?

What is the expected return on this stock given the following information?