# 1. What is the expected return and standard deviation of a portfolio consisting of $2,500 invested in...

## Question:

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

Stocks

Stocks or shares are generally equity instruments that provide the largest source of raising funds in any public or private listed company's. The instruments are issued on a stock exchange from where a large number of general public who are willing... Expected Return

The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these... Portfolio

A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...

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**Related Book For**

## Introduction To Corporate Finance

**ISBN:** 9781118300763

3rd Edition

**Authors:** Laurence Booth, Sean Cleary