Question

1. What is the expected return and standard deviation of a portfolio consisting of $2,500 invested in a risk-free asset with an 8-percent rate of return, and $7,500 invested in a risky security with a 20-percent rate of return and a 25-percent standard deviation?
a. 11 percent, 6.25 percent
b. 17 percent, 18.75 percent
c. 6.25 percent, 11 percent
d. 18.75 percent, 17 percent

2. Which of the following statements is correct?
a. The new efficient frontier is a curved line similar to the original efficient frontier.
b. All the portfolios along the new efficient frontier dominate those along the original efficient frontier including the tangency portfolio.
c. The weight of the risk-free asset is positive in calculating expected return when investors buy stocks on margin.
d. Investors who are more risk averse invest to the left of the tangent portfolio.

3. What is the standard deviation of an efficient portfolio with a 20-percent expected rate of return, given that RF is 5 percent, ERM is 8 percent, and σM is 24 percent?
a. 50 percent
b. 20 percent
c. 60 percent
d. 120 percent

4. Which of the following statements is false?
a. The standard deviation of a risk-free asset is zero.
b. Portfolios on the efficient frontier dominate all other attainable portfolios for a given risk or return.
c. The covariance of any combination of a risky security and a risk-free asset is zero.
d. The risk measurement associated with the security market line (SML) is the standard deviation of the portfolio.

5. If portfolio A lies above the SML, portfolio A is
a. Overvalued
b. Undervalued
c. Properly valued
d. Undetermined

6. All of the following are differences between the CML and SML, except
a. The slope
b. The risk measurement
c. The y-intercept
d. The application to the required return on individual securities

7. A portfolio with a beta greater than 1 is
a. More volatile than the market
b. Less volatile than the market
c. As volatile as the market
d. Not volatile

8. Which of the following statements is false?
a. Systematic risk cannot be diversified away.
b. The market portfolio includes all risky assets including stocks, bonds, real estate, derivatives, and so on.
c. The market portfolio is observable.
d. The y-intercept of both the SML and the CML is RF.

9. Systematic risk (beta)
a. Is also called unique risk
b. Equals total risk divided by non-systematic risk
c. Estimates do not change through time
d. Measures of portfolios are more stable than those of individual assets



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  • CreatedFebruary 25, 2015
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