Exam 11: Diversification and Risky Asset Allocation

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?

Alicia has a portfolio consisting of two stocks,X and Y,which is valued at $89,100.Stock X is worth $57,800.What is the portfolio weight of stock Y?

Travis has a portfolio consisting of two stocks,A and B,which is valued at $53,800.Stock A is worth $23,900.What is the portfolio weight of stock B?

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 that belongs to the Markowitz efficient set of portfolios will have which one of the following characteristics? Assume the portfolios are comprised of five individual securities.

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

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?

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?

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

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

You combine a set of assets using different weights such that you produce the following results. Which one of these portfolios CANNOT be a Markowitz efficient portfolio?

An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy.The overall expected return on the security is 8.88 percent.Given there are only two states of the economy,what is the probability that the economy will boom?

Which one of the following statements must be true?

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?

Which one of the following statements is correct?

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?

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

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

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?

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?