Question 1

You have a portfolio which is comprised of 75 percent of stock A and 25 percent of stock B.What is the expected rate of return on this portfolio?

Accepted Answer

A)  10.70 percent 
B)  10.87 percent 
C)  11.13 percent 
D)  12.11 percent 
E)  12.80 percent 
A)  10.70 percent 
B)  10.87 percent 
C)  11.13 percent 
D)  12.11 percent 
E)  12.80 percent

Question 2

You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B.What is the expected rate of return on this portfolio?

Accepted Answer

A)  12.76 percent 
B)  12.88 percent 
C)  13.44 percent 
D)  13.56 percent 
E)  13.85 percent 
A)  12.76 percent 
B)  12.88 percent 
C)  13.44 percent 
D)  13.56 percent 
E)  13.85 percent

Question 3

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

Accepted Answer

A)  0.336 
B)  0.389 
C)  0.445 
D)  0.451 
E)  0.557 
A)  0.336 
B)  0.389 
C)  0.445 
D)  0.451 
E)  0.557

Question 4

If two assets have a zero correlation,their returns will:

Accepted Answer

A)  always move in the same direction by the same amount. 
B)  always move in the same direction but not necessarily by the same amount. 
C)  move randomly and independently of each other. 
D)  always move in opposite directions but not necessarily by the same amount. 
E)  always move in opposite directions by the same amount. 
A)  always move in the same direction by the same amount. 
B)  always move in the same direction but not necessarily by the same amount. 
C)  move randomly and independently of each other. 
D)  always move in opposite directions but not necessarily by the same amount. 
E)  always move in opposite directions by the same amount.

Question 5

You currently have a portfolio comprised of 70 percent stocks and 30 percent bonds.Which one of the following must be true if you change the asset allocation?

Accepted Answer

A)  The expected return will remain constant. 
B)  The revised portfolio will be perfectly negatively correlated with the initial portfolio. 
C)  The two portfolios could have significantly different standard deviations. 
D)  The portfolio variance will be unaffected. 
E)  The portfolio variance will most likely decrease in value. 
A)  The expected return will remain constant. 
B)  The revised portfolio will be perfectly negatively correlated with the initial portfolio. 
C)  The two portfolios could have significantly different standard deviations. 
D)  The portfolio variance will be unaffected. 
E)  The portfolio variance will most likely decrease in value.

Question 6

The division of a portfolio's dollars among various types of assets is referred to as:

Accepted Answer

A)  the minimum variance portfolio. 
B)  the efficient frontier. 
C)  correlation. 
D)  asset allocation. 
E)  setting the investment opportunities. 
A)  the minimum variance portfolio. 
B)  the efficient frontier. 
C)  correlation. 
D)  asset allocation. 
E)  setting the investment opportunities.

Question 7

Which one of the following statements is correct?

Accepted Answer

A)  A portfolio variance is a weighted average of the variances of the individual securities which comprise the portfolio. 
B)  A portfolio variance is dependent upon the portfolio's asset allocation. 
C)  A portfolio variance is unaffected by the correlations between the individual securities held in the portfolio. 
D)  The portfolio variance must be greater than the lowest variance of any of the securities held in the portfolio. 
E)  The portfolio variance must be less than the lowest variance of any of the securities held in the portfolio. 
A)  A portfolio variance is a weighted average of the variances of the individual securities which comprise the portfolio. 
B)  A portfolio variance is dependent upon the portfolio's asset allocation. 
C)  A portfolio variance is unaffected by the correlations between the individual securities held in the portfolio. 
D)  The portfolio variance must be greater than the lowest variance of any of the securities held in the portfolio. 
E)  The portfolio variance must be less than the lowest variance of any of the securities held in the portfolio.

Question 8

You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B.What is the expected return on this portfolio?

Accepted Answer

A)  5.45 percent 
B)  6.69 percent 
C)  7.14 percent 
D)  7.60 percent 
E)  8.22 percent 
A)  5.45 percent 
B)  6.69 percent 
C)  7.14 percent 
D)  7.60 percent 
E)  8.22 percent

Question 9

The risk-free rate is 4.20 percent.What is the expected risk premium on this stock given the following information?

Accepted Answer

A)  5.85 percent 
B)  6.59 percent 
C)  8.22 percent 
D)  10.16 percent 
E)  11.21 percent 
A)  5.85 percent 
B)  6.59 percent 
C)  8.22 percent 
D)  10.16 percent 
E)  11.21 percent

Question 10

Rosita owns a stock with an overall expected return of 14.40 percent.The economy is expected to either boom or be normal.There is a 52 percent chance the economy will boom.If the economy booms,this stock is expected to return 15 percent.What is the expected return on the stock if the economy is normal?

Accepted Answer

A)  12.00 percent 
B)  12.83 percent 
C)  13.15 percent 
D)  13.75 percent 
E)  14.40 percent 
A)  12.00 percent 
B)  12.83 percent 
C)  13.15 percent 
D)  13.75 percent 
E)  14.40 percent

Question 11

Which one of the following is eliminated,or at least greatly reduced,by increasing the number of individual securities held in a portfolio?

Accepted Answer

A)  number of economic states 
B)  various expected returns caused by changing economic states 
C)  market risk 
D)  diversifiable risk 
E)  non-diversifiable risk 
A)  number of economic states 
B)  various expected returns caused by changing economic states 
C)  market risk 
D)  diversifiable risk 
E)  non-diversifiable risk

Question 12

Which of the following will increase the expected risk premium for a security,all else constant?
I.an increase in the security's expected return
II.a decrease in the security's expected return
III.an increase in the risk-free rate
IV.a decrease in the risk-free rate

Accepted Answer

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

Question 13

Which one of the following correlation relationships has the potential to completely eliminate risk?

Accepted Answer

A)  perfectly positive 
B)  positive 
C)  negative 
D)  perfectly negative 
E)  uncorrelated 
A)  perfectly positive 
B)  positive 
C)  negative 
D)  perfectly negative 
E)  uncorrelated

Question 14

You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B.What is the variance of this portfolio?

Accepted Answer

A)  190.9 
B)  203.8 
C)  268.1 
D)  290.9 
E)  306.9 
A)  190.9 
B)  203.8 
C)  268.1 
D)  290.9 
E)  306.9

Question 15

A stock fund has a standard deviation of 28 percent and a bond fund has a standard deviation of 16 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)  21 percent 
D)  24 percent 
E)  27 percent 
A)  11 percent 
B)  15 percent 
C)  21 percent 
D)  24 percent 
E)  27 percent

Question 16

You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities.Which one of the following statements is correct regarding this graph?

Accepted Answer

A)  Risk-taking investors should select the minimum variance portfolio. 
B)  Risk-averse investors should select the portfolio with the lowest rate of return. 
C)  Some portfolios will be efficient while others will not. 
D)  The minimum variance portfolio will have the lowest portfolio expected return of any of the possible portfolios. 
E)  All possible portfolios will graph as efficient portfolios. 
A)  Risk-taking investors should select the minimum variance portfolio. 
B)  Risk-averse investors should select the portfolio with the lowest rate of return. 
C)  Some portfolios will be efficient while others will not. 
D)  The minimum variance portfolio will have the lowest portfolio expected return of any of the possible portfolios. 
E)  All possible portfolios will graph as efficient portfolios.

Question 17

You own a portfolio comprised of 4 stocks and the economy has 3 possible states.Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent,regardless of the economic state.Given this,what must be value of the portfolio's variance be?

Accepted Answer

A)  negative, but not -1 
B)  -1.0 
C)  0.0 
D)  1.0 
E)  positive, but not +1 
A)  negative, but not -1 
B)  -1.0 
C)  0.0 
D)  1.0 
E)  positive, but not +1

Question 18

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

Accepted Answer

A)  0.336 
B)  0.389 
C)  0.445 
D)  0.451 
E)  0.529 
A)  0.336 
B)  0.389 
C)  0.445 
D)  0.451 
E)  0.529

Question 19

You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio?

Accepted Answer

A)  4.39 percent 
B)  5.68 percent 
C)  6.41 percent 
D)  7.14 percent 
E)  9.08 percent 
A)  4.39 percent 
B)  5.68 percent 
C)  6.41 percent 
D)  7.14 percent 
E)  9.08 percent

Question 20

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?

Accepted Answer

A)  minimum variance set 
B)  financial frontier 
C)  efficient portfolio 
D)  allocated set 
E)  investment opportunity set 
A)  minimum variance set 
B)  financial frontier 
C)  efficient portfolio 
D)  allocated set 
E)  investment opportunity set

You have a portfolio which is comprised of 75 percent of stock A and 25 percent of stock B.What is the expected rate of return on this portfolio?

You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B.What is the expected rate of return on this portfolio?

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

If two assets have a zero correlation,their returns will:

You currently have a portfolio comprised of 70 percent stocks and 30 percent bonds.Which one of the following must be true if you change the asset allocation?

The division of a portfolio's dollars among various types of assets is referred to as:

Which one of the following statements is correct?

You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B.What is the expected return on this portfolio?

The risk-free rate is 4.20 percent.What is the expected risk premium on this stock given the following information?

Which one of the following is eliminated,or at least greatly reduced,by increasing the number of individual securities held in a portfolio?

Which of the following will increase the expected risk premium for a security,all else constant? I.an increase in the security's expected return II.a decrease in the security's expected return III.an increase in the risk-free rate IV.a decrease in the risk-free rate

Which one of the following correlation relationships has the potential to completely eliminate risk?

You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B.What is the variance of this portfolio?

A stock fund has a standard deviation of 28 percent and a bond fund has a standard deviation of 16 percent.The correlation of the two funds is .15.What is the approximate weight of the stock fund in the minimum variance portfolio?

You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities.Which one of the following statements is correct regarding this graph?

You own a portfolio comprised of 4 stocks and the economy has 3 possible states.Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent,regardless of the economic state.Given this,what must be value of the portfolio's variance be?

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

You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio?

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?

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 75 percent of stock A and 25 percent of stock B.What is the expected rate of return on this portfolio?

You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B.What is the expected rate of return on this portfolio?

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

If two assets have a zero correlation,their returns will:

You currently have a portfolio comprised of 70 percent stocks and 30 percent bonds.Which one of the following must be true if you change the asset allocation?

The division of a portfolio's dollars among various types of assets is referred to as:

Which one of the following statements is correct?

You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B.What is the expected return on this portfolio?

The risk-free rate is 4.20 percent.What is the expected risk premium on this stock given the following information?

Which one of the following is eliminated,or at least greatly reduced,by increasing the number of individual securities held in a portfolio?

Which of the following will increase the expected risk premium for a security,all else constant? I.an increase in the security's expected return II.a decrease in the security's expected return III.an increase in the risk-free rate IV.a decrease in the risk-free rate

Which one of the following correlation relationships has the potential to completely eliminate risk?

You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B.What is the variance of this portfolio?

A stock fund has a standard deviation of 28 percent and a bond fund has a standard deviation of 16 percent.The correlation of the two funds is .15.What is the approximate weight of the stock fund in the minimum variance portfolio?

You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities.Which one of the following statements is correct regarding this graph?

You own a portfolio comprised of 4 stocks and the economy has 3 possible states.Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent,regardless of the economic state.Given this,what must be value of the portfolio's variance be?

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

You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B.What is the standard deviation of this portfolio?

Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets?

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