Consider the following probability distribution for stocks A and B: \(\begin{array}{cccc} \underline{\text { State} } & \underline{\text { Probability }} & \underline{\text { Return on Stock A } }& \underline{\text { Return on Stock B }} \\ 1 & 0.15 & 8 \% & 8 \% \\ 2 & 0.20 & 13 \% & 7 \% \\ 3 & 0.15 & 12 \% & 6 \% \\ 4 & 0.30 & 14 \% & 9 \% \\ 5 & 0.20 & 16 \% & 11 \% \end{array}\) -The standard deviations of stocks A and B are _____ and _____,respectively.

A) 1.56%; 1.99% B) 2.45%; 1.66% C) 3.22%; 2.01% D) 1.54%; 1.11% E) none of the above A) 1.56%; 1.99% B) 2.45%; 1.66% C) 3.22%; 2.01% D) 1.54%; 1.11% E) none of the above B

Consider the following probability distribution for stocks A and B: \(\begin{array}{cccc} \underline{\text { State} } & \underline{\text { Probability }} & \underline{\text { Return on Stock A } }& \underline{\text { Return on Stock B }} \\ 1 & 0.15 & 8 \% & 8 \% \\ 2 & 0.20 & 13 \% & 7 \% \\ 3 & 0.15 & 12 \% & 6 \% \\ 4 & 0.30 & 14 \% & 9 \% \\ 5 & 0.20 & 16 \% & 11 \% \end{array}\) -The expected rates of return of stocks A and B are _____ and _____,respectively.

A) 13.2%; 9% B) 13%; 8.4% C) 13.2%; 7.7% D) 7.7%; 13.2% E) none of the above A) 13.2%; 9% B) 13%; 8.4% C) 13.2%; 7.7% D) 7.7%; 13.2% E) none of the above

Exam 7: Optimal Risky Portfolios

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated.The global minimum variance portfolio has a standard deviation that is always

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Question 1

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Consider the following probability distribution for stocks A and B: 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% -The standard deviations of stocks A and B are _ and _,respectively.

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Question 2

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Theoretically,the standard deviation of a portfolio can be reduced to what level? Explain.Realistically,is it possible to reduce the standard deviation to this level?

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Question 3

Correct Answer:

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Theoretically, if one could find two securities with perfectly negatively correlated returns (correlation coefficient = -1), one could solve for the weights of these securities that would produce the minimum variance portfolio of these two securities. The standard deviation of the resulting portfolio would be equal to zero. However, in reality, securities with perfect negative correlations do not exist.

In a two-security minimum variance portfolio where the correlation between securities is greater than -1.0

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Question 4

When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,

(Multiple Choice)

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Question 5

Which of the following statement(s)is (are)true regarding the selection of a portfolio from those that lie on the Capital Allocation Line?

(Multiple Choice)

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Question 6

The Capital Allocation Line provided by a risk-free security and N risky securities is

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Question 7

Given an optimal risky portfolio with expected return of 12% and standard deviation of 26% and a risk free rate of 3%,what is the slope of the best feasible CAL?

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Question 8

Which statement about portfolio diversification is correct?

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Question 9

Consider the following probability distribution for stocks A and B: 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% -The expected rates of return of stocks A and B are _ and _,respectively.

(Multiple Choice)

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Question 10

Given an optimal risky portfolio with expected return of 14% and standard deviation of 22% and a risk free rate of 6%,what is the slope of the best feasible CAL?

(Multiple Choice)

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Question 11

The individual investor's optimal portfolio is designated by:

(Multiple Choice)

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Question 12

Security X has expected return of 12% and standard deviation of 20%.Security Y has expected return of 15% and standard deviation of 27%.If the two securities have a correlation coefficient of 0.7,what is their covariance?

(Multiple Choice)

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Question 13

In words,the covariance considers the probability of each scenario happening and the interaction between

(Multiple Choice)

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Question 14

Let G be the global minimum variance portfolio.The weights of A and B in G are and ,respectively.

(Multiple Choice)

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Question 15

Given an optimal risky portfolio with expected return of 13% and standard deviation of 26% and a risk free rate of 5%,what is the slope of the best feasible CAL?

(Multiple Choice)

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Question 16

The weights of K and L in the global minimum variance portfolio are _ and _,respectively.

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Question 17

The risk that can be diversified away in a portfolio is referred to as ___________. I)diversifiable risk II)unique risk III)systematic risk IV)firm-specific risk

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Question 18

The standard deviation of a portfolio of risky securities is

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Question 19

If you invest 25% of your money in C and 75% in D,what would be your portfolio's expected rate of return and standard deviation?

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Question 20

Showing 1 - 20 of 79

Exam 7: Optimal Risky Portfolios

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated.The global minimum variance portfolio has a standard deviation that is always

Consider the following probability distribution for stocks A and B: 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% -The standard deviations of stocks A and B are _____ and _____,respectively.

Theoretically,the standard deviation of a portfolio can be reduced to what level? Explain.Realistically,is it possible to reduce the standard deviation to this level?

In a two-security minimum variance portfolio where the correlation between securities is greater than -1.0

When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,

Which of the following statement(s)is (are)true regarding the selection of a portfolio from those that lie on the Capital Allocation Line?

The Capital Allocation Line provided by a risk-free security and N risky securities is

Given an optimal risky portfolio with expected return of 12% and standard deviation of 26% and a risk free rate of 3%,what is the slope of the best feasible CAL?

Which statement about portfolio diversification is correct?

Consider the following probability distribution for stocks A and B: 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% -The expected rates of return of stocks A and B are _____ and _____,respectively.

Given an optimal risky portfolio with expected return of 14% and standard deviation of 22% and a risk free rate of 6%,what is the slope of the best feasible CAL?

The individual investor's optimal portfolio is designated by:

Security X has expected return of 12% and standard deviation of 20%.Security Y has expected return of 15% and standard deviation of 27%.If the two securities have a correlation coefficient of 0.7,what is their covariance?

In words,the covariance considers the probability of each scenario happening and the interaction between

Let G be the global minimum variance portfolio.The weights of A and B in G are __________ and __________,respectively.

Given an optimal risky portfolio with expected return of 13% and standard deviation of 26% and a risk free rate of 5%,what is the slope of the best feasible CAL?

The weights of K and L in the global minimum variance portfolio are _____ and _____,respectively.

The risk that can be diversified away in a portfolio is referred to as ___________. I)diversifiable risk II)unique risk III)systematic risk IV)firm-specific risk

The standard deviation of a portfolio of risky securities is

If you invest 25% of your money in C and 75% in D,what would be your portfolio's expected rate of return and standard deviation?

The Investment Environment

Asset Classes and Financial Instruments

How Securities are Traded

Mutual Funds and Other Investment Companies

Introduction to Risk,return,and the Historical Record

Risk Aversion and Capital Allocation to Risky Assets

Index Models

The Capital Asset Pricing Model

Arbitrage Pricing Theory and Multifactor Models of Risk and Return

The Efficient Market Hypothesis

Behavioral Finance and Technical Analysis

Empirical Evidence on Security Returns

Bond Prices and Yields

The Term Structure of Interest Rates

Managing Bond Portfolios

Options Markets: Introduction

Option Valuation

Futures Markets

Futures, swaps, and Risk Management

Macroeconomic and Industry Analysis

Equity Valuation Models

Financial Statement Analysis

Portfolio Performance Evaluation

International Diversification

Hedge Funds

The Theory of Active Portfolio Management

Investment Policy and the Framework of the CFA Institute Appendices

Filters

Consider the following probability distribution for stocks A and B: 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% -The standard deviations of stocks A and B are _ and _,respectively.

Consider the following probability distribution for stocks A and B: 1 0.15 8\% 8\% 2 0.20 13\% 7\% 3 0.15 12\% 6\% 4 0.30 14\% 9\% 5 0.20 16\% 11\% -The expected rates of return of stocks A and B are _ and _,respectively.

Let G be the global minimum variance portfolio.The weights of A and B in G are and ,respectively.

The weights of K and L in the global minimum variance portfolio are _ and _,respectively.