1. If you have one security with an expected return of 7% and a standard deviation of

2% and a second security with an expected return of 13% and a standard deviation of

2.4%, what would be the expected return of a portfolio that consists of 30% of the

first security and 70% of this second security?

A. 10.1% B. 11.2% C. 11.7% D. 12.5% E. 12.7%

2. If the correlation coefficient between the two securities is -.30, what is the standard

deviation of the portfolio in the previous problem?

A. 1.605 B. 1.912 C. 2.285 D. 2.479 E. 2.585

Use this info for the next five problems.

State

Probability

Return on A Return on B

Boom

.05

12% 9%

Norm

.20

6% 4%

Bust

.75

2% - 4%

3. What is the standard deviation of A?

A. 2.12 B. 2.55

C. 2.76

D. 2.92 E. 3.14

4. What is the standard deviation of B?

A. 4.02 B. 4.45

C. 4.73

D. 4.91 E. 5.02

5. What is the covariance of A and B?

A. 8.12 B. 8.55

C. 9.26

D. 9.52 E. 9.98

6. What is the correlation coefficient of A and B?

A. .79

B. .82

C. .87

D. .97 E. 1.22

7. What is the standard deviation of a portfolio with 20% of the funds invested in A and the rest in B?

A. 3.72 B. 3.94

C. 4.12

D. 4.35 E. 4.58

Use this info for the next five problems.

State

Probability

Return on C Return on D

Boom

.25

10% 5%

Norm

.40

6% 10%

Bust

.35

2% 5%

8. What is the standard deviation of C?

A. 2.62 B. 2.85

C. 3.07

D. 3.22 E. 3.34

9. What is the standard deviation of D?

A. 2.02 B. 2.45

C. 2.73

D. 2.91 E. 3.02

10. What is the covariance of C and D?

A. 0.8

B. 1.2

C. 1.4

D. 1.8 E. 2.2

11. What is the correlation coefficient of C and D?

A. .11

B. .22

C. .27

D. .33 E. .39

12. What is the standard deviation of a portfolio with 40% of the funds invested in C and the rest in D?

A. 2.01 B. 2.94

C. 3.12

D. 3.35 E. 3.58