Question 1

Which one of the following distinguishes a minimum variance portfolio?

Accepted Answer

A) lowest risk portfolio of any possible portfolio given the same securities but in differing proportions 
B) lowest risk portfolio possible given any specified expected rate of return 
C) the zero risk portfolio created by maximizing the asset allocation mix 
D) any portfolio with an expected standard deviation of 9 percent or less 
E) any portfolio created with securities that are evenly weighted in respect to the asset allocation mix 
A) lowest risk portfolio of any possible portfolio given the same securities but in differing proportions 
B) lowest risk portfolio possible given any specified expected rate of return 
C) the zero risk portfolio created by maximizing the asset allocation mix 
D) any portfolio with an expected standard deviation of 9 percent or less 
E) any portfolio created with securities that are evenly weighted in respect to the asset allocation mix

Question 2

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 3

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:

Accepted Answer

A) decrease. 
B) either remain constant or decrease. 
C) remain constant. 
D) increase. 
E) either remain constant or increase. 
A) decrease. 
B) either remain constant or decrease. 
C) remain constant. 
D) increase. 
E) either remain constant or increase.

Question 4

You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B.What is the variance of this portfolio?

Accepted Answer

A) 57.86 
B) 61.05 
C) 66.84 
D) 70.15 
E)  75.93 
A) 57.86 
B) 61.05 
C) 66.84 
D) 70.15 
E)  75.93

Question 5

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

Accepted Answer

A) 6.40 percent 
B) 6.57 percent 
C) 8.99 percent 
D) 13.40 percent 
E) 14.25 percent 
A) 6.40 percent 
B) 6.57 percent 
C) 8.99 percent 
D) 13.40 percent 
E) 14.25 percent

Question 6

What is the standard deviation of a security which has the following expected returns?

Accepted Answer

A) 7.48 percent 
B) 7.61 percent 
C) 7.67 percent 
D) 7.82 percent 
E) 7.91 percent 
A) 7.48 percent 
B) 7.61 percent 
C) 7.67 percent 
D) 7.82 percent 
E) 7.91 percent

Question 7

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 8

What is the standard deviation of the returns on this stock?

Accepted Answer

A) 223.94 percent 
B) 24.08 percent 
C) 24.17 percent 
D) 25.72 percent 
E) 26.90 percent 
A) 223.94 percent 
B) 24.08 percent 
C) 24.17 percent 
D) 25.72 percent 
E) 26.90 percent

Question 9

A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio?

Accepted Answer

A) 100 percent stocks 
B) 100 percent bonds 
C) 50/50 mix of stocks and bonds 
D) 30 percent stocks and 70 percent bonds 
E) 30 percent bonds and 70 percent stocks 
A) 100 percent stocks 
B) 100 percent bonds 
C) 50/50 mix of stocks and bonds 
D) 30 percent stocks and 70 percent bonds 
E) 30 percent bonds and 70 percent stocks

Question 10

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

Accepted Answer

A) zero. 
B) the risk-free rate. 
C) the market rate. 
D) the market rate minus the risk-free rate. 
E) the risk-free rate plus one-half the market rate. 
A) zero. 
B) the risk-free rate. 
C) the market rate. 
D) the market rate minus the risk-free rate. 
E) the risk-free rate plus one-half the market rate.

Question 11

The risk-free rate is 4.35 percent.What is the expected risk premium on this security given the following information?

Accepted Answer

A) 4.09 percent 
B) 4.54 percent 
C) 5.25 percent 
D) 5.87 percent 
E) 6.15 percent 
A) 4.09 percent 
B) 4.54 percent 
C) 5.25 percent 
D) 5.87 percent 
E) 6.15 percent

Question 12

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

Accepted Answer

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

Question 13

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 14

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?

Accepted Answer

A)  There is no risk premium on Security C. 
B)  The risk premium on Security A exceeds that of Security B. 
C)  Security B has a risk premium that is 50 percent greater than Security A's risk premium. 
D)  The risk premium on Security C is 5 percent. 
E)  All three securities have the same expected risk premium. 
A)  There is no risk premium on Security C. 
B)  The risk premium on Security A exceeds that of Security B. 
C)  Security B has a risk premium that is 50 percent greater than Security A's risk premium. 
D)  The risk premium on Security C is 5 percent. 
E)  All three securities have the same expected risk premium.

Question 15

What is the standard deviation of the returns on this stock?

Accepted Answer

A) 3.33 percent 
B) 4.62 percent 
C) 5.01 percent 
D) 5.77 percent 
E) 6.06 percent 
A) 3.33 percent 
B) 4.62 percent 
C) 5.01 percent 
D) 5.77 percent 
E) 6.06 percent

Question 16

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 17

Explain the primary goal of portfolio diversification as it relates to asset allocation and correlation.

Accepted Answer

The primary goal of portfolio diversific

Question 18

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

Accepted Answer

A) 9.67 percent 
B) 9.88 percent 
C) 10.03 percent 
D) 11.79 percent 
E)  12.40 percent 
A) 9.67 percent 
B) 9.88 percent 
C) 10.03 percent 
D) 11.79 percent 
E)  12.40 percent

Question 19

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

Question 20

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.

Which one of the following distinguishes a minimum variance portfolio?

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

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 have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B.What is the variance of this portfolio?

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

What is the standard deviation of a security which has the following expected returns?

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

What is the standard deviation of the returns on this stock?

A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio?

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

The risk-free rate is 4.35 percent.What is the expected risk premium on this security given the following information?

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

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

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?

What is the standard deviation of the returns on this stock?

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

Explain the primary goal of portfolio diversification as it relates to asset allocation and correlation.

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

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

Non-diversifiable risk:

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

Which one of the following distinguishes a minimum variance portfolio?

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

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 have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B.What is the variance of this portfolio?

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

What is the standard deviation of a security which has the following expected returns?

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

What is the standard deviation of the returns on this stock?

A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio?

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

The risk-free rate is 4.35 percent.What is the expected risk premium on this security given the following information?

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

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

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?

What is the standard deviation of the returns on this stock?

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

Explain the primary goal of portfolio diversification as it relates to asset allocation and correlation.

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

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

Non-diversifiable risk:

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