Question 1

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

Accepted Answer

A)  7.30 percent 
B)  7.58 percent 
C)  8.03 percent 
D)  8.88 percent 
E)  9.40 percent 
A)  7.30 percent 
B)  7.58 percent 
C)  8.03 percent 
D)  8.88 percent 
E)  9.40 percent

Question 2

Stock A has a standard deviation of 20 percent per year and stock B has a standard deviation of 15 percent per year.The correlation between stock A and stock B is .35.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

Accepted Answer

A)  0.02022 
B)  0.02156 
C)  0.02239 
D)  0.02247 
E)  0.02304 
A)  0.02022 
B)  0.02156 
C)  0.02239 
D)  0.02247 
E)  0.02304

Question 3

Which one of the following statements must be true?

Accepted Answer

A)  All securities are projected to have higher rates of return when the economy booms versus when it is normal. 
B)  Considering the possible states of the economy emphasizes the fact that multiple outcomes can be realized from an investment. 
C)  The highest probability of occurrence must be placed on a normal economy versus either a boom or a recession. 
D)  The total of the probabilities of the economic states can vary between zero and 100 percent. 
E)  Various economic states affect a portfolio's expected return but not the expected level of risk. 
A)  All securities are projected to have higher rates of return when the economy booms versus when it is normal. 
B)  Considering the possible states of the economy emphasizes the fact that multiple outcomes can be realized from an investment. 
C)  The highest probability of occurrence must be placed on a normal economy versus either a boom or a recession. 
D)  The total of the probabilities of the economic states can vary between zero and 100 percent. 
E)  Various economic states affect a portfolio's expected return but not the expected level of risk.

Question 4

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 0.30.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 60 percent.What is your portfolio standard deviation?

Accepted Answer

A)  14.87 percent 
B)  15.50 percent 
C)  16.91 percent 
D)  17.45 percent 
E)  18.03 percent 
A)  14.87 percent 
B)  15.50 percent 
C)  16.91 percent 
D)  17.45 percent 
E)  18.03 percent

Question 5

Tall Stand Timber stock has an expected return of 16.8 percent.What is the risk-free rate if the risk premium on the stock is 12.1 percent?

Accepted Answer

A)  4.70 percent 
B)  5.30 percent 
C)  5.67 percent 
D)  6.55 percent 
E)  7.17 percent 
A)  4.70 percent 
B)  5.30 percent 
C)  5.67 percent 
D)  6.55 percent 
E)  7.17 percent

Question 6

A stock fund has a standard deviation of 18 percent and a bond fund has a standard deviation of 10 percent.The correlation of the two funds is .15.What is the approximate weight of the stock fund in the minimum variance portfolio?

Accepted Answer

A)  11 percent 
B)  15 percent 
C)  20 percent 
D)  24 percent 
E)  27 percent 
A)  11 percent 
B)  15 percent 
C)  20 percent 
D)  24 percent 
E)  27 percent

Question 7

A stock fund has a standard deviation of 16 percent and a bond fund has a standard deviation of 4 percent.The correlation of the two funds is .11.What is the weight of the stock fund in the minimum variance portfolio?

Accepted Answer

A)  3.47 percent 
B)  6.48 percent 
C)  11.92 percent 
D)  14.67 percent 
E)  18.22 percent 
A)  3.47 percent 
B)  6.48 percent 
C)  11.92 percent 
D)  14.67 percent 
E)  18.22 percent

Question 8

Non-diversifiable risk:

Accepted Answer

A)  can be cut almost in half by simply investing in 10 stocks provided each stock is in a different industry. 
B)  can almost be eliminated by investing in 35 diverse securities. 
C)  remains constant regardless of the number of securities held in a portfolio. 
D)  has little, if any, impact on the actual realized returns for a diversified portfolio. 
E)  should be ignored by investors. 
A)  can be cut almost in half by simply investing in 10 stocks provided each stock is in a different industry. 
B)  can almost be eliminated by investing in 35 diverse securities. 
C)  remains constant regardless of the number of securities held in a portfolio. 
D)  has little, if any, impact on the actual realized returns for a diversified portfolio. 
E)  should be ignored by investors.

Question 9

The risk-free rate is 3.0 percent.What is the expected risk premium on this security given the following information?

Accepted Answer

A)  2.90 percent 
B)  3.01 percent 
C)  3.20 percent 
D)  3.80 percent 
E)  4.15 percent 
A)  2.90 percent 
B)  3.01 percent 
C)  3.20 percent 
D)  3.80 percent 
E)  4.15 percent

Question 10

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

Accepted Answer

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 
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

Question 11

Which one of the following correlation coefficients can provide the greatest diversification benefit?

Accepted Answer

A)  -1.0 
B)  -0.5 
C)  0.0 
D)  0.5 
E)  1.0 
A)  -1.0 
B)  -0.5 
C)  0.0 
D)  0.5 
E)  1.0

Question 12

Which one of the following returns is the average return you expect to earn in the future on a risky asset?

Accepted Answer

A)  realized return 
B)  expected return 
C)  market return 
D)  real return 
E)  adjusted return 
A)  realized return 
B)  expected return 
C)  market return 
D)  real return 
E)  adjusted return

Question 13

You have a portfolio which is comprised of 48 percent of stock A and 52 percent of stock B.What is the standard deviation of this portfolio?

Accepted Answer

A)  1.98 percent 
B)  2.06 percent 
C)  2.13 percent 
D)  2.27 percent 
E)  2.30 percent 
A)  1.98 percent 
B)  2.06 percent 
C)  2.13 percent 
D)  2.27 percent 
E)  2.30 percent

Question 14

Alicia has a portfolio consisting of two stocks,X and Y,which is valued at $95,300.Stock X is worth $65,700.What is the portfolio weight of stock Y?

Accepted Answer

A)  0.351 
B)  0.390 
C)  0.408 
D)  0.610 
E)  0.649 
A)  0.351 
B)  0.390 
C)  0.408 
D)  0.610 
E)  0.649

Question 15

You have a portfolio which is comprised of 40 percent of stock A and 60 percent of stock B.What is the variance of the portfolio?

Accepted Answer

A)  57.86 
B)  62.13 
C)  66.84 
D)  70.15 
E)  75.93 
A)  57.86 
B)  62.13 
C)  66.84 
D)  70.15 
E)  75.93

Question 16

The value of an individual security divided by the total value of the portfolio is referred to as the portfolio:

Accepted Answer

A)  beta. 
B)  standard deviation. 
C)  balance. 
D)  weight. 
E)  variance. 
A)  beta. 
B)  standard deviation. 
C)  balance. 
D)  weight. 
E)  variance.

Question 17

What is the correlation coefficient of two assets that are uncorrelated?

Accepted Answer

A)  -100 
B)  -1 
C)  0 
D)  1 
E)  100 
A)  -100 
B)  -1 
C)  0 
D)  1 
E)  100

Question 18

Where does the minimum variance portfolio lie in respect to the investment opportunity set?

Accepted Answer

A)  lowest point 
B)  highest point 
C)  most leftward point 
D)  most rightward point 
E)  exact center 
A)  lowest point 
B)  highest point 
C)  most leftward point 
D)  most rightward point 
E)  exact center

Question 19

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

Accepted Answer

A)  -2.05 percent 
B)  -1.08 percent 
C)  0.47 percent 
D)  1.22 percent 
E)  1.43 percent 
A)  -2.05 percent 
B)  -1.08 percent 
C)  0.47 percent 
D)  1.22 percent 
E)  1.43 percent

Question 20

Which of the following are affected by the probability of a state of the economy occurring?
I.expected return of an individual security
II.expected return of a portfolio
III.standard deviation of an individual security
IV.standard deviation of a portfolio

Accepted Answer

A)  I and III only 
B)  I and II only 
C)  II and IV only 
D)  III and IV only 
E)  I, II, III, and IV 
A)  I and III only 
B)  I and II only 
C)  II and IV only 
D)  III and IV only 
E)  I, II, III, and IV

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

Stock A has a standard deviation of 20 percent per year and stock B has a standard deviation of 15 percent per year.The correlation between stock A and stock B is .35.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

Which one of the following statements must be true?

Tall Stand Timber stock has an expected return of 16.8 percent.What is the risk-free rate if the risk premium on the stock is 12.1 percent?

A stock fund has a standard deviation of 18 percent and a bond fund has a standard deviation of 10 percent.The correlation of the two funds is .15.What is the approximate weight of the stock fund in the minimum variance portfolio?

A stock fund has a standard deviation of 16 percent and a bond fund has a standard deviation of 4 percent.The correlation of the two funds is .11.What is the weight of the stock fund in the minimum variance portfolio?

Non-diversifiable risk:

The risk-free rate is 3.0 percent.What is the expected risk premium on this security given the following information?

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

Which one of the following correlation coefficients can provide the greatest diversification benefit?

Which one of the following returns is the average return you expect to earn in the future on a risky asset?

You have a portfolio which is comprised of 48 percent of stock A and 52 percent of stock B.What is the standard deviation of this portfolio?

Alicia has a portfolio consisting of two stocks,X and Y,which is valued at $95,300.Stock X is worth $65,700.What is the portfolio weight of stock Y?

You have a portfolio which is comprised of 40 percent of stock A and 60 percent of stock B.What is the variance of the portfolio?

The value of an individual security divided by the total value of the portfolio is referred to as the portfolio:

What is the correlation coefficient of two assets that are uncorrelated?

Where does the minimum variance portfolio lie in respect to the investment opportunity set?

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

Which of the following are affected by the probability of a state of the economy occurring? I.expected return of an individual security II.expected return of a portfolio III.standard deviation of an individual security IV.standard deviation of a portfolio

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters

Exam 11: Diversification and Risky Asset Allocation

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

Stock A has a standard deviation of 20 percent per year and stock B has a standard deviation of 15 percent per year.The correlation between stock A and stock B is .35.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

Which one of the following statements must be true?

Tall Stand Timber stock has an expected return of 16.8 percent.What is the risk-free rate if the risk premium on the stock is 12.1 percent?

A stock fund has a standard deviation of 18 percent and a bond fund has a standard deviation of 10 percent.The correlation of the two funds is .15.What is the approximate weight of the stock fund in the minimum variance portfolio?

A stock fund has a standard deviation of 16 percent and a bond fund has a standard deviation of 4 percent.The correlation of the two funds is .11.What is the weight of the stock fund in the minimum variance portfolio?

Non-diversifiable risk:

The risk-free rate is 3.0 percent.What is the expected risk premium on this security given the following information?

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

Which one of the following correlation coefficients can provide the greatest diversification benefit?

Which one of the following returns is the average return you expect to earn in the future on a risky asset?

You have a portfolio which is comprised of 48 percent of stock A and 52 percent of stock B.What is the standard deviation of this portfolio?

Alicia has a portfolio consisting of two stocks,X and Y,which is valued at $95,300.Stock X is worth $65,700.What is the portfolio weight of stock Y?

You have a portfolio which is comprised of 40 percent of stock A and 60 percent of stock B.What is the variance of the portfolio?

The value of an individual security divided by the total value of the portfolio is referred to as the portfolio:

What is the correlation coefficient of two assets that are uncorrelated?

Where does the minimum variance portfolio lie in respect to the investment opportunity set?

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

Which of the following are affected by the probability of a state of the economy occurring? I.expected return of an individual security II.expected return of a portfolio III.standard deviation of an individual security IV.standard deviation of a portfolio

A Brief History of Risk and Return

The Investment Process

Overview of Security Types

Mutual Funds and Other Investment Companies

The Stock Market

Common Stock Valuation

Stock Price Behavior and Market Efficiency

Behavioral Finance and the Psychology of Investing

Interest Rates

Bond Prices and Yields

Return,Risk,and the Security Market Line

Performance Evaluation and Risk Management

Futures Contracts

Stock Options

Option Valuation

Projecting Cash Flow and Earnings

Corporate and Government Bonds

Global Economic Activity and Industry Analysis

Mortgage-Backed Securities

Filters