Question 1

The addition of foreign securities to the domestic portfolio opportunity set shifts the efficient frontier:

Accepted Answer

A) down and to the left. 
B) up and to the right. 
C) up and to the left. 
D) down and to the right.

Question 2

Instruction 16.2:Use the information to answer the following question(s).
A U.S. investor is considering a portfolio consisting of 60% invested in the U.S. equity index fund and 40% invested in the British equity index fund. The expected returns for the funds are 10% for the U.S. and 8% for the British, standard deviations of 20% for the U.S. and 18% for the British, and a correlation coefficient of 0.15 between the U.S. and British equity funds.
-Refer to Instruction 16.2. What is the standard deviation of the proposed portfolio?

Accepted Answer

A) 38.00 
B) 19.20 
C) 19.00 
D) 14.45

Question 3

The authors present a comparison of correlation coefficients between major global equity markets over a variety of different periods. The comparison yields a number of conclusions listed here EXCEPT:

Accepted Answer

A) the correlation between equity markets for the full twentieth century shows quite low levels of correlation between some of the largest markets (close to 0.50 in some cases). 
B) that same century of data, however, yields a high correlation between the U.S. and Canada (0.80). 
C) the correlation coefficients between those same equity markets for selected sub periods over the last quarter of the twentieth century, however, show significantly different correlation coefficients. 
D) None of the answers listed are inaccurate conclusions.

Question 4

Portfolio diversification can eliminate 100% of risk.

Accepted Answer

A) True 
 B)False

Question 5

Instruction 16.1:Use the information to answer the following question(s).
In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 16.1. At the end of the year the investor sells his stock that now has an average price per share of €57. What is the investor's average rate of return after converting the stock back into dollars?

Accepted Answer

A) -1.35% 
B) 5.0% 
C) -5.0% 
D) -7.24%

Question 6

The Sharpe measure uses ________ as the measure of risk and the Treynor measure uses ________ as the measure of risk.

Accepted Answer

A) standard deviation; variance 
B) beta; variance 
C) standard deviation; beta 
D) beta; standard deviation

Question 7

In an empirical study on national market returns in the 20th century, Dimson, Marsh, and Staunton (2002)determined that the equity returns in the United States out-performed the other 15 countries in the study.

Accepted Answer

A) True 
 B)False

Question 8

TABLE 16.1
Use the information to answer following question(s). 
-Refer to Table 16.1. What is the value of the Treynor Measure for the Netherlands?

Accepted Answer

A) 0.197 
B) 0.0109 
C) either A or B 
D) neither A nor B

Question 9

The internationally diversified portfolio opportunity set shifts TO THE RIGHT of the purely domestic opportunity set.

Accepted Answer

A) True 
 B)False

Question 10

In some respects, internationally diversified portfolios are the same in principle as a domestic portfolio because:

Accepted Answer

A) the investor is attempting to combine assets that are perfectly correlated. 
B) investors are trying to reduce systematic risk. 
C) investors are trying to reduce the total risk of the portfolio. 
D) all of the above

Question 11

Instruction 16.1:Use the information to answer the following question(s).
In September 2009 a U.S. investor chooses to invest $500,000 in German equity securities at a then current spot rate of $1.30/euro. At the end of one year the spot rate is $1.35/euro.
-Refer to Instruction 16.1. How many euros will the U.S. investor acquire with his initial $500,000 investment?

Accepted Answer

A) €650,000 
B) €370,370 
C) €500,000 
D) €384,615

Exam 16: International Portfolio Theory and Diversification

The addition of foreign securities to the domestic portfolio opportunity set shifts the efficient frontier:

The authors present a comparison of correlation coefficients between major global equity markets over a variety of different periods. The comparison yields a number of conclusions listed here EXCEPT:

Portfolio diversification can eliminate 100% of risk.

The Sharpe measure uses as the measure of risk and the Treynor measure uses as the measure of risk.

In an empirical study on national market returns in the 20th century, Dimson, Marsh, and Staunton (2002)determined that the equity returns in the United States out-performed the other 15 countries in the study.

TABLE 16.1 Use the information to answer following question(s) . -Refer to Table 16.1. What is the value of the Treynor Measure for the Netherlands?

The internationally diversified portfolio opportunity set shifts TO THE RIGHT of the purely domestic opportunity set.

In some respects, internationally diversified portfolios are the same in principle as a domestic portfolio because: