Question 1

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.F) B) and E)
G) C) and D)

Question 2

A group of stocks and bonds held by an investor is called which one of the following?

Accepted Answer

A)   weights
B)   grouping
C)   basket
D)   portfolio
E)   bundleF) A) and E)
G) A) and B)

Question 3

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.F) C) and D)
G) A) and D)

Question 4

What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset called?

Accepted Answer

A)   efficient return
B)   correlated value
C)   risk premium
D)   expected return
E)   realized returnF) C) and E)
G) A) and C) C

Question 5

Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 8 percent per year.The correlation between stock A and stock B is .40.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

Accepted Answer

A)   0.01143
B)   0.01214
C)   0.01329
D)   0.01437
E)   0.01470F) B) and D)
G) A) and B)

Question 6

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

Accepted Answer

A)   increasing returns
B)   minimizing taxes
C)   reducing some risks
D)   eliminating all risks
E)   increasing the varianceF) C) and D)
G) B) and E)

Question 7

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

Accepted Answer

A)   1.21
B)   1.42
C)   1.56
D)   3.84
E)   4.03F) B) and C)
G) D) and E)

Question 8

You are graphing the investment opportunity set for a portfolio of two securities with the expected return on the vertical axis and the standard deviation on the horizontal axis.If the correlation coefficient of the two securities is +1,the opportunity set will appear as which one of the following shapes?

Accepted Answer

A)   conical shape
B)   linear with an upward slope
C)   combination of two straight lines
D)   hyperbole
E)   horizontal lineF) A) and C)
G) A) and B)

Question 9

What is the variance of the returns on a security given the following information?

Accepted Answer

A)   48.18
B)   56.23
C)   64.38
D)   72.87
E)   91.35F) None of the above
G) A) and D)

Question 10

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 onlyF) A) and B)
G) B) and E) B

Question 11

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?

Accepted Answer

A)   -1.0
B)   -0.5
C)   0.0
D)   0.5
E)   1.0F) A) and E)
G) C) and E)

Question 12

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?

Accepted Answer

A)   weighted average return given the multiple states of the economy
B)   rate of return for a given economic state
C)   variance of the returns given the multiple states of the economy
D)   correlation between the returns give the various states of the economy
E)   correlation of the weighted average return as compared to the marketF) A) and B)
G) C) and D)

Question 13

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

Accepted Answer

A)   -1.0
B)   -0.5
C)   0.0
D)   0.5
E)   1.0F) A) and D)
G) A) and E)

Question 14

You have a portfolio which is comprised of 70 percent of stock A and 30 percent of stock B.What is the ex return on this portfolio?

Accepted Answer

A)   9.30 percent
B)   9.58 percent
C)   10.03 percent
D)   11.79 percent
E)   12.40 percentF) A) and E)
G) All of the above

Question 15

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

Accepted Answer

A)   9.36 percent
B)   9.74 percent
C)   10.85 percent
D)   11.78 percent
E)   12.05 percentF) A) and C)
G) A) and E) C

Question 16

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

Accepted Answer

A)   18.75
B)   22.75
C)   31.53
D)   48.97
E)   50.03F) None of the above
G) B) and C)

Question 17

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.F) A) and E)
G) B) and E)

Question 18

A portfolio consists of the following securities.What is the portfolio weight of stock X?

Accepted Answer

A)   0.183
B)   0.202
C)   0.219
D)   0.246
E)   0.285F) All of the above
G) A) and D)

Question 19

An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy.The overall expected return on the security is 5.45 percent.Given there are only two states of the economy,what is the probability that the economy will boom?

Accepted Answer

A)   28 percent
B)   33 percent
C)   35 percent
D)   41 percent
E)   45 percentF) A) and C)
G) B) and D)

Question 20

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 percentF) All of the above
G) C) and D)

Exam 11: Diversification and Risky Asset Allocation

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:

Correct Answer
verified

A group of stocks and bonds held by an investor is called which one of the following?

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

Correct Answer
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What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset called?

Correct Answer
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C

Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 8 percent per year.The correlation between stock A and stock B is .40.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

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

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

Correct Answer
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Correct Answer
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What is the variance of the returns on a security given the following information?

Correct Answer
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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

Correct Answer
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B

Correct Answer
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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?

Correct Answer
verified

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

Correct Answer
verified

You have a portfolio which is comprised of 70 percent of stock A and 30 percent of stock B.What is the ex return on this portfolio?

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

Correct Answer
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C

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

Correct Answer
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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?

Correct Answer
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A portfolio consists of the following securities.What is the portfolio weight of stock X?

Correct Answer
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An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy.The overall expected return on the security is 5.45 percent.Given there are only two states of the economy,what is the probability that the economy will boom?

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

Correct Answer
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Exam 11: Diversification and Risky Asset Allocation

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:

Correct AnswerverifiedShow Answer

A group of stocks and bonds held by an investor is called which one of the following?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset called?

Correct AnswerverifiedC

Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 8 percent per year.The correlation between stock A and stock B is .40.You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40 percent.What is your portfolio variance?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

What is the variance of the returns on a security given the following information?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedB

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero?

Correct AnswerverifiedShow Answer

You have a portfolio which is comprised of 70 percent of stock A and 30 percent of stock B.What is the ex return on this portfolio?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedC

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

Correct AnswerverifiedShow Answer

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?

Correct AnswerverifiedShow Answer

A portfolio consists of the following securities.What is the portfolio weight of stock X?

Correct AnswerverifiedShow Answer

An investor owns a security that is expected to return 10 percent in a booming economy and 3 percent in a normal economy.The overall expected return on the security is 5.45 percent.Given there are only two states of the economy,what is the probability that the economy will boom?

Correct AnswerverifiedShow Answer

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

Correct AnswerverifiedShow Answer

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C

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B

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C

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