1, Theoretically, it is impossible to construct a portfolio with zero variance from assets whose returns have positive variance individually, if the pair-wise correlation coefficients of these returns are greater than negative one.

True

False

2, What is ABC portfolio's beta if 25% of the funds are invested in the market portfolio, 50% in an asset with twice as much risk as the market portfolio, and the remainder in a risk-free asset?

1.25

0.25

0.50

0.75

1.00

3, Which of the following is true?

• There is a reward for bearing idosyncratic risk, on average.
• If a market is efficient, all assets in that market will have the same reward to risk ratio.
• On average, the greater the risk, the lower the reward.
• When comparing the common stock of two firms, the riskier one will have the lower price.
• Risky assets on average do not earn a risk premium.

4, The ABC Co.'s stock prices are $50, $60, $75, $90, and $99 over the past five years, respectively. Its dividends over the same periods are $1, $1.7, $1.8, and $2 respectively. What is the arithmetic mean of the capital gains yield over these years?

• 2.36%
• 20.96%
• 10%
• 28.99%
• 18.75%

5, Assume you are looking at a graph depicting the security market line in an efficient market. A stock which is miss-priced may not plot on that graph:

• above the security market line.
• on the security market line.
• to the left of the overall market.
• to the right of the overall market.
• below the security market line.