Answer all or dont do

Question 1: Which of the following statements about correlation is accurate?

		If the correlation coefficient is 0, a zero-variance portfolio can be constructed.
		Diversification reduces risk when correlation only when correlation is negative.
		The lower the correlation coefficient, the greater the potential benefits from diversification.
		Covariance between returns ranges from -1 to +1.
		None the above statements is accurate.

Question 2:

Which of the following statements about risk-averse investors are true? A risk-averse investor _________. [I] seeks out the investment with minimum risk, while return is not a major concern. [II] will take additional risk if sufficiently compensated for the risk. [III] will only invest in bonds.

		I only.
		II only.
		III only.
		I and II only.
		None of statements I, II, or III are true.

Question 3: Which of the following statements about the Capital Market Line is/are true? [I] Under CAPM assumptions, a rational investor will only invest in a portfolio along the CML. [II] All portfolios along the CML have the same level of expected return. [III] Investors with different risk aversion would invest in different portfolios along the CML.

		I only
		II only
		I and II only
		I and III only
		I, II, and III

Question 4: You estimate an index model for Stock A using the market excess return. The estimate beta is 1.4. The standard deviation of market return is 5% and the standard deviation of Stock As return is 8%. What is the R-squared of Stock A using this single index model?

		50%
		76.6%
		87.5%
		100%
		none of the above