Many kind of existing and reworn down Enron Corp. employees had actually their 401k retirement accounts wiped out once Enron broke down bereason ________.

You are watching: Rational risk-averse investors will always prefer portfolios _____________.

they had actually to pay huge fines for obstruction of justice

their 401k accounts were hosted exterior the company

their 401k accounts were not well diversified

namong these options


*

Based on the outcomes in the following table, select which of the statements below is (are) correct?

I. The covariance of protection A and protection B is zero.

II. The correlation coreliable between securities A and also C is negative.

The correlation coreliable between securities B and also C is positive.

I only

I and II only

II and also III only

I, II, and III


Asset A has actually an supposed return of 15% and also a reward-to-variability ratio of .4. Asset B has actually an expected rerevolve of 20% and a reward-to-varicapability ratio of .3. A risk-averse investor would like a portfolio making use of the risk-cost-free asset and also ______.

asset A

ascollection B

no risky asset

The answer cannot be determined from the data given.


Adding additional riskies assets to the investment possibility set will certainly mainly move the effective frontier _____ and to the ______.

up; right

up; left

down; right

down; left


An investor"s level of hazard aversion will certainly recognize his or her ______.

optimal risky portfolio

risk-totally free rate

optimal mix of the risk-free asset and also risky asset

capital allocation line


The ________ is equal to the square root of the organized variance divided by the complete variance.

covariance

correlation coefficient

standard deviation

reward-to-variability ratio


Which of the following statistics cannot be negative?

A. covarianceB. varianceC. E(r) D. correlation coefficient


10. Asset A has actually an intended return of 20% and a standard deviation of 25%. The risk-complimentary price is 10%. What is the reward-to-varicapability ratio?

A. .40

B. .50

C. .75

D. .80


11. The correlation coefficient in between two assets equals _________.

their covariance divided by the product of their variances

the product of their variances split by their covariance

the sum of their supposed returns separated by their covariance

their covariance divided by the product of their standard deviations


12. Diversification is most reliable when protection returns are _________.

high

negatively correlated

positively correlated

uncorrelated


13. The expected rate of rerevolve of a portfolio of risky securities is _________.

A. the sum of the securities" covarianceB. the sum of the securities" varianceC. the weighted sum of the securities" intended returnsD. the weighted amount of the securities" variance


14. Beta is a measure of defense responsiveness to _________.

firm-specific risk

diversifiable risk

sector risk

distinctive risk


15. The hazard that have the right to be diversified ameans is __________.

beta

firm-specific risk

market risk

systematic risk


16. Approximately how many securities does it take to diversify almost every one of the distinctive risk from a portfolio?

2

6

8

20


17. Consider an investment chance set developed with 2 securities that are perfectly negatively correlated. The global minimum-variance portfolio has a traditional deviation that is always _________.

equal to the amount of the securities" conventional deviations

equal to -1

equal to 0

greater than 0


18. Market threat is likewise dubbed __________ and also _________.

systematic risk; diversifiable risk

methodical risk; nondiversifiable risk

unique risk; nondiversifiable risk

unique risk; diversifiable risk


19. Firm-specific hazard is also called __________ and __________.

methodical risk; diversifiable risk

methodical risk; nondiversifiable risk

distinct risk; nondiversifiable risk

distinctive risk; diversifiable risk


20. Which one of the adhering to stock rerotate statistics fluctuates the most over time?

A. covariance of returnsB. variance of returnsC. average returnD. correlation coefficient


21. Harry Markowitz is best recognized for his Nobel Prize-winning occupational on _____________.

tactics for energetic securities trading

techniques provided to identify effective portfolios of riskies assets

approaches provided to measure the organized threat of securities

approaches provided in valuing securities options


22. Suppose that a stock portfolio and also a bond portfolio have a zero correlation. This implies that ______.

the returns on the stock and bond portfolios tend to relocate inversely

the returns on the stock and bond portfolios tend to differ individually of each other

the retransforms on the stock and bond portfolios tend to relocate together

the covariance of the stock and bond portfolios will be positive


You put fifty percent of your money in a stock portfolio that has actually an expected return of 14% and also a typical deviation of 24%. You put the remainder of your money in a risky bond portfolio that has actually an supposed return of 6% and a typical deviation of 12%. The stock and also bond portfolios have a correlation of .55. The conventional deviation of the resulting portfolio will certainly be ________________.

more than 18% however much less than 24%

equal to 18%

even more than 12% but much less than 18%

equal to 12%


24. On a conventional expected rerotate versus standard deviation graph, investors will certainly prefer portfolios that lie to the _____________ the present investment chance collection.

left and also above

left and also below

ideal and above

ideal and also below


25. The term complete portfolio describes a portfolio consisting of _________________.

the risk-complimentary ascollection linked through at leastern one risky asset

the sector portfolio unified with the minimum-variance portfolio

securities from residential markets combined via securities from international markets

prevalent stocks unified through bonds


26. Rational risk-averse investors will certainly constantly favor portfolios _____________.

located on the reliable frontier to those located on the funding industry line

situated on the funding sector line to those located on the reliable frontier

at or close to the minimum-variance point on the effective frontier

that are risk-complimentary to all other ascollection choices


27. The optimal risky portfolio deserve to be determined by finding:

I. The minimum-variance allude on the effective frontier

II. The maximum-rerevolve suggest on the effective frontier and the minimum-variance point on the efficient frontier

III. The tangency point of the funding market line and the effective frontier

IV. The line with the steepest slope that connects the risk-cost-free rate to the reliable frontier

I and II only

II and also III only

III and IV only

I and IV only


28. The _________ reward-to-varicapacity proportion is uncovered on the ________ resources sector line.

lowest; steepest

highest; flattest

highest; steepest

lowest; flattest


29. A portfolio is created of 2 stocks, A and also B. Stock A has actually a conventional deviation of rerotate of 24%, while stock B has actually a typical deviation of rerevolve of 18%. Stock A comprises 60% of the portfolio, while stock B comprises 40% of the portfolio. If the variance of rerotate on the portfolio is

.0380, the correlation coreliable between the retransforms on A and also B is _________.

A. .583

B. .225

C. .327

D. .128


30. The conventional deviation of rerotate on investment A is .10, while the standard deviation of rerevolve on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coreliable between the retransforms on A and B is _________.

A. .12

B. .36

C. .60

D. .77


31. A portfolio is composed of 2 stocks, A and B. Stock A has actually a standard deviation of return of 35%, while stock B has a typical deviation of rerevolve of 15%. The correlation coeffective in between the retransforms on A and also B is .45. Stock A comprises 40% of the portfolio, while stock B comprises 60% of the portfolio. The typical deviation of the rerevolve on this portfolio is _________.

23%

19.76%

18.45%

17.67%


32. The conventional deviation of rerotate on investment A is .10, while the conventional deviation of return on investment B is .04. If the correlation coreliable between the retransforms on A and B is -.50, the covariance of retransforms on A and also B is _________.

-.0447

-.0020

.0020

.0447


33. Consider 2 perfectly negatively associated riskies securities, A and B. Security A has actually an expected rate of rerevolve of 16% and a standard deviation of rerevolve of 20%. B has an meant rate of rerevolve of 10% and also a traditional deviation of rerevolve of 30%. The weight of defense B in the minimum-variance portfolio is _________.

10%

20%

40%

60%


34. An investor have the right to design a risky portfolio based upon two stocks, A and also B. Stock A has an intended rerotate of 18% and also a conventional deviation of rerotate of 20%. Stock B has actually an meant rerotate of 14% and also a conventional deviation of rerotate of 5%. The correlation coeffective in between the returns of A and also B is .50. The risk-complimentary rate of return is 10%. The propercentage of the optimal risky portfolio that need to be invested in stock A is _________.

0%

40%

60%

100%


An investor have the right to style a risky portfolio based on 2 stocks, A and B. Stock A has an intended rerevolve of 18% and also a conventional deviation of rerotate of 20%. Stock B has actually an supposed return of 14% and a typical deviation of return of 5%. The correlation coefficient in between the returns of A and B is .50. The risk-free rate of return is 10%. The supposed rerevolve on the optimal risky portfolio is _________.

14%

15.6%

16.4%

18%


An investor deserve to architecture a risky portfolio based upon 2 stocks, A and also B. Stock A has an meant return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a typical deviation of return of 5%. The correlation coreliable in between the returns of A and also B is .50. The risk-complimentary rate of return is 10%. The standard deviation of return on the optimal risky portfolio is _________.

0%

5%

7%

20%


An investor have the right to architecture a risky portfolio based on two stocks, A and also B. Stock A has an meant rerevolve of 21% and a typical deviation of rerotate of 39%. Stock B has an meant rerevolve of 14% and a traditional deviation of return of 20%. The correlation coeffective between the returns of A and B is .4. The risk-cost-free price of rerotate is 5%. The propercent of the optimal risky portfolio that should be invested in stock B is approximately

_________.

29%

44%

56%

71%


An investor deserve to style a risky portfolio based on 2 stocks, A and also B. Stock A has an meant rerevolve of 21% and a standard deviation of rerevolve of 39%. Stock B has an supposed rerotate of 14% and a traditional deviation of return of 20%. The correlation coreliable in between the retransforms of A and also B is .4. The risk-totally free rate of rerotate is 5%. The meant rerevolve on the optimal risky portfolio is roughly _________. (Hint: Find weights first.)

14%

16%

18%

19%


39. An investor have the right to architecture a riskies portfolio based upon two stocks, A and also B. Stock A has actually an meant rerotate of 21% and a typical deviation of rerevolve of 39%. Stock B has actually an supposed rerotate of 14% and a conventional deviation of return of 20%. The correlation coreliable in between the retransforms of A and B is .4. The risk-free rate of rerevolve is 5%. The conventional deviation of retransforms on the optimal risky portfolio is _________.

25.5%

22.3%

21.4%

D. 20.7%


40. An investor deserve to architecture a riskies portfolio based upon 2 stocks, A and B. The conventional deviation of rerotate on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coeffective in between the retransforms on A and B is .35. The expected rerevolve on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would certainly be invested in stock B is about _________.

45%

67%

85%

92%


41. An investor can architecture a riskies portfolio based upon two stocks, A and B. The conventional deviation of rerevolve on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coreliable between the returns on A and also B is 0%. The rate of return for stocks A and B is 20 and also 10 respectively. The supposed return on the minimum-variance portfolio is approximately _________.

10%

13.6%

15%

19.41%


42. An investor deserve to architecture a riskies portfolio based on 2 stocks, A and also B. The typical deviation of rerotate on stock A is 20%, while the traditional deviation on stock B is 15%. The correlation coefficient between the retransforms on A and B is 0%. The conventional deviation of return on the minimum-variance portfolio is _________.

0%

6%

12%

17%


43. A measure of the riskiness of an ascollection organized in isolation is ____________.

beta

traditional deviation

covariance

alpha


44. Semitool Corp. has an meant excess return of 6% for next year. However before, for eexceptionally unexpected 1% change in the market, Semitool"s rerevolve responds by a element of 1.2. Suppose it transforms out that the economic climate and the stock industry do much better than meant by 1.5% and also Semitool"s commodities suffer more rapid expansion than anticipated, pushing up the stock price by one more 1%. Based on this indevelopment, what was Semitool"s actual excess return?

7%

8.5%

8.8%

9.25%


45. The component of a stock"s return that is methodical is a function of which of the adhering to variables?

I. Volatility in excess returns of the stock market

II. The sensitivity of the stock"s retransforms to transforms in the stock market

The variance in the stock"s returns that is unconcerned the overall stock market

I only

I and also II only

II and III only

I, II, and III


46. Stock A has a beta of 1.2, and also stock B has a beta of 1. The retransforms of stock A are ______ sensitive to alters in the sector than are the returns of stock B.

20% more

slightly more

20% less

slightly less


47. Which threat can be partially or completely diversified away as additional securities are added to a portfolio?

I. Total risk

II. Systematic risk

Firm-certain risk

I only

I and II only

I, II, and also III

I and also III


48. According to Tobin"s separation home, portfolio option have the right to be separated right into two independent work consisting of __________ and

__________.

A.identifying all investor imposed constraints; identifying the collection of securities that condevelop to the investor"s constraints and also sell the finest risk-rerevolve trade-offsB.identifying the investor"s level of hazard aversion; choosing securities from market groups that are regular with the investor"s hazard profile

C.identifying the optimal risky portfolio; creating a finish portfolio from T-bills and the optimal risky portfolio based upon the investor"s level of threat aversionD.selecting which riskies assets an investor prefers according to the investor"s risk-aversion level; minimizing the CAL by lending at the risk-cost-free rate


You are building a scatter plot of excess retransforms for stock A versus the industry index. If the correlation coeffective in between stock A and also the index is -1, you will certainly discover that the points of the scatter diagram ___________ and also the line of best fit has actually a ______________.

all fall on the line of finest fit; positive slope

all fall on the line of finest fit; negative slope

are commonly scattered around the line; positive slope

are extensively scattered around the line; negative slope


50. The term excess rerotate refers to ______________.

returns earned illegally by means of insider trading

the difference between the rate of rerevolve earned and the risk-complimentary rate

the distinction between the price of rerevolve earned on a details security and also the rate of rerotate earned on other securities of tantamount risk

the percent of the rerotate on a security that represents taxes licapability and therefore cannot be reinvested


51. You are recalculating the hazard of ACE stock in relation to the sector index, and also you find that the ratio of the methodical variance to the total variance has climbed. You must also discover that the ____________.

covariance between ACE and also the market has fallen

correlation coreliable in between ACE and also the sector has actually fallen

correlation coefficient between ACE and the sector has actually risen

unmethodical risk of ACE has actually risen


52. A stock has actually a correlation through the market of .45. The typical deviation of the sector is 21%, and the typical deviation of the stock is 35%. What is the stock"s beta?

A. 1

B. .75

C. .60

D. .55


53. The values of beta coefficients of securities are __________.

constantly positive

always negative

constantly between positive 1 and also negative 1

generally positive yet are not restricted in any type of particular way


54. A security"s beta coreliable will certainly be negative if ____________.

its returns are negatively associated via market-index returns

its returns are positively correlated with market-index returns

its stock price has actually historically been extremely stable

market demand for the firm"s shares is incredibly low


55. The market value weighted-average beta of firms consisted of in the market index will always be _____________.

0

in between 0 and also 1

1

none of these choices (Tright here is no specific preeminence concerning the average beta of firms included in the sector index.)


56. Diversification have the right to mitigate or eliminate __________ danger.

all

systematic

nonsystematic

D. only an insignificant


57. To construct a riskmuch less portfolio using two risky stocks, one would certainly must uncover 2 stocks via a correlation coeffective of ________.

A. 1

B. .5

0

-1


58. Some diversification benefits deserve to be accomplished by combining securities in a portfolio as lengthy as the correlation in between the securities is

_____________.

1

much less than 1

in between 0 and 1

much less than or equal to 0


59. If an investor does not diversify his portfolio and instead puts all of his money in one stock, the proper measure of protection danger for that investor is the ________.

stock"s typical deviation

variance of the market

stock"s beta

covariance with the sector index


60. Which of the following provides the best example of a systematic-danger event?

A strike by union employees damages a firm"s quarterly revenue.

Mad Cow disease in Montana damages neighborhood ranchers and buyers of beef.

The Federal Reserve rises interest prices 50 basis points.

A senior executive at a firm embezzles $10 million and also escapes to South America.


61. Which of the complying with statements is (are) true concerning time diversification?

I. The standard deviation of the average yearly price of return over numerous years will be smaller than the 1-year typical deviation.

II. For a much longer time horizon, uncertainty compounds over a greater variety of years.

Time diversification does not reduce danger.

I only

II only

II and also III only

I, II, and III


62. You uncover that the yearly Sharpe proportion for stock A returns is equal to 1.8. For a 3-year holding period, the Sharpe proportion would equal _______.

1.8

2.48

3.12

5.49


*

The beta of this stock is ____.

A. .12

B. .35

1.32

4.05


*

This stock has greater methodical danger than a stock with a beta of ___.

A. .50

1.5

2

3


*

The characteristic line for this stock is Rstock = ___ + ___ Rsector.

A. .35; .12

4.05; 1.32

15.44; .97

D. 26; 1.36


*

_______________ % of the variance is defined by this regression.

12

35

4.05

80


*

The stock is ______ riskier than the typical stock.

32%

15.44%

12%

38%


68. Decreasing the number of stocks in a portfolio from 50 to 10 would likely ________________.

rise the systematic danger of the portfolio

rise the unorganized risk of the portfolio

boost the rerotate of the portfolio

decrease the variation in retransforms the investor deals with in any type of one year


69. If you desire to understand the portfolio typical deviation for a three-stock portfolio, you will certainly need to ______.

calculate two covariances and one trivariance

calculate just two covariances

calculate 3 covariances

average the variances of the individual stocks


70. Which of the complying with correlation coefficients will create the leastern diversification benefit?

-.6

-.3

0

.8


71. Which of the adhering to correlation coefficients will certainly create the most diversification benefits?

-.6

-.9

0

.4


72. What is the the majority of most likely correlation coreliable in between a stock-index mutual fund and the S&P 500?

-1

0

1

.5


73. Investing in two assets with a correlation coreliable of -.5 will reduce what sort of risk?

A. market riskB. nondiversifiable riskC. organized riskD. distinct risk


74. Investing in two assets through a correlation coeffective of 1 will certainly reduce which kind of risk?

A. market riskB. distinctive riskC. unsystematic riskD. none of these options (With a correlation of 1, no threat will certainly be diminished.)


75. A portfolio of stocks fluctuates when the Treasury yields readjust. Because this threat cannot be removed with diversification, it is called

__________.

firm-particular risk

organized risk

distinct risk

namong the options


76. As you lengthen the moment horizon of your investment duration and decide to invest for multiple years, you will certainly uncover that:

I. The average threat per year might be smaller over longer investment horizons.

II. The in its entirety hazard of your investment will certainly compound over time.

Your as a whole hazard on the investment will certainly autumn.

I only

I and II only

III only

I, II, and III


. You are considering adding a new protection to your portfolio. To decide whether you must add the protection, you must understand the security"s:

I. Expected return

II. Standard deviation

Correlation via your portfolio

I only

I and also II only

I and also III only

I, II, and also III


Which of the complying with is a correct expression concerning the formula for the conventional deviation of returns of a two-ascollection portfolio wbelow the correlation coreliable is positive?

A. σ2rp B. σ2rp = (W12σ12 + W22σ22)C. σ2rp = (W12σ12 - W22σ22)D. σ2rp > (W12σ12 + W22σ22)


79. What is the standard deviation of a portfolio of two stocks provided the adhering to data: Stock A has a conventional deviation of 18%. Stock B has a typical deviation of 14%. The portfolio contains 40% of stock A, and the correlation coeffective between the two stocks is -.23.

9.7%

12.2%

14%

15.6%


80. What is the traditional deviation of a portfolio of 2 stocks provided the adhering to data: Stock A has actually a traditional deviation of 30%. Stock B has a conventional deviation of 18%. The portfolio consists of 60% of stock A, and also the correlation coeffective between the 2 stocks is -1.

0%

10.8%

18%

24%


81. The expected return of a portfolio is 8.9%, and the risk-complimentary price is 3.5%. If the portfolio typical deviation is 12%, what is the reward-to-varicapacity proportion of the portfolio?

A. 0

B. .45

C. .74

D. 1.35


82. A job has a 60% possibility of doubling your investment in 1 year and also a 40% opportunity of losing fifty percent your money. What is the standard deviation of this investment?

25%

50%

62%

73%


83. A project has a 50% opportunity of doubling your investment in 1 year and also a 50% opportunity of losing fifty percent your money. What is the expected return on this investment project?

0%

25%

50%

75%


*

84. The numbers below show pseveral monthly excess returns for 2 stocks plotted versus excess retransforms for a sector index.

Which stock is likely to even more reduce threat for an investor presently holding her portfolio in a well-diversified portfolio of widespread stock?

Stock A

Stock B

Tright here is no difference between A or B.

The answer cannot be determined from the indevelopment given.


*

85. The numbers listed below display plots of monthly excess returns for two stocks plotted against excess retransforms for a industry index.

Which stock is riskier to a nondiversified investor who puts all his money in just among these stocks?

Stock A is riskier.

Stock B is riskier.

Both stocks are equally riskies.

The answer cannot be determined from the indevelopment provided.


86. In the article “Danger: High Levels of Company Stock,” what is the maximum amount of your employer’s stock that the author recommends you host in your retirement account?

A. 5% B. 10%C. 50%D. 90%


87. The efficient frontier represents a collection of portfolios that

A. maximize intended rerevolve for a provided level of hazard.B. minimize intended rerotate for a provided level of threat.C. maximize hazard for a provided level of return.D. None of the choices.


88. The portfolio with the lowest standard deviation for any danger premium is referred to as the_______.

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A. CAL portfolioB. effective frontier portfolioC. worldwide minimum variance portfolioD. optimal risky portfolio


89. Lear Corp. has actually an intended excessrerotate of 8% following year. Assume Lear’s beta is 1.43. If the economy booms and the stock market beats expectations by 5%, what was Lear’s actual excess return?

A. 7.15% B. 13%C. 15.15%D. 18.59 %


90. The plot of a security’s excess rerotate relative to the market’s excess rerevolve is called the _______.

A. reliable frontierB.protection characteristic lineC. funding alarea lineD. capital sector line