Assignment $1$

A factor that most likely measures a client's ability to bear risk is his or her:

A time horizon.

B inclination to independent thinking.

C personality type.

An optimal risky portfolio has an expected return of $15\%$ and standard deviation of $20\%.$ The risk$-$free

rate is currently $5\%.$ A risk$-$seeking investor who is considering investing along the capital allocation line $($CAL$)$

would most likely:

A borrow $25\%$ of her wealth at the risk$-$free rate and invest $125\%$ in the optimal risky portfolio.

B invest $100\%$ of her wealth in the optimal risky portfolio.

Clend $100\%$ of her wealth at the risk$-$free rate.

A portfolio manager decides to temporarily invest more of a portfolio in equities than the investment

policy statement prescribes because he expects equities will generate a higher return than other asset classes.

This decision is most likely

an example of:

A rebalancing.

B tactical asset allocation.

C strategic asset allocation.

A portfolio with equal parts invested in a risk$-$free asset and a risky portfolio will most likely lie on:

A the efficient frontier.

B a capital allocation line.

$C$ the security market line.

All else held constant, a lower correlation between the assets in a portfolio most likely results in higher:

A diversification.

B volatility.

$C$ portfolio return.

Which of the following is $($are$)$ true about the Capital Market Theory?

I. A portfolio that lies above the Security Market Line $($SML$)$ is underpriced.

II$.$ The correlation between two portfolios on the SML equals $+1.$

III. Portfolios that lie on the Capital Market Line $($CML$)$ are as completely diversified as possible.

IV$.$ Portfolios that lie on the SML are not necessarily completely diversified.

A$.$ I, III and IV

B$.$ I, II$,$ III and IV

C$.$ I. II and IV

If Investor A has a lower risk aversion coefficient than Investor B$,$ will Investor B$\text{'}$s optimal portfolio

most likely have a higher expected return on the capital allocation line?

A No$,$ because Investor B has a lower risk tolerance

$B$ No$,$ because Investor B has a higher risk tolerance

$c$ Yes

Assignment $1$

A factor that most likely measures a client's ability to bear risk is his or her:

A time horizon.

B inclination to independent thinking.

$C$ personality type.

An optimal risky portfolio has an expected return of $15\%$ and standard deviation of $20\%.$ The risk$-$free

rate is currently $5\%.$ A risk$-$seeking investor who is considering investing along the capital allocation line $($CAL$)$

would most likely:

A borrow $25\%$ of her wealth at the risk$-$free rate and invest $125\%$ in the optimal risky portfolio.

B invest $100\%$ of her wealth in the optimal risky portfolio.

$C$ lend $100\%$ of her wealth at the risk$-$free rate.

A portfolio manager decides to temporarily invest more of a portfolio in equities than the investment

policy statement prescribes because he expects equities will generate a higher return than other asset classes.

This decision is most likely

an example of:

A rebalancing.

B tactical asset allocation.

C strategic asset allocation.

A portfolio with equal parts invested in a risk$-$free asset and a risky portfolio will most likely lie on:

A the efficient frontier.

B a capital allocation line.

$C$ the security market line.

All else held constant, a lower correlation between the assets in a portfolio most likely results in higher:

A diversification.

B volatility.

$C$ portfolio return.

Which of the following is $($are$)$ true about the Capital Market Theory?

I. A portfolio that lies above the Security Market Line $($SML$)$ is underpriced.

II$.$ The correlation between two portfolios on the SML equals $+1.$

III. Portfolios that lie on the Capital Market Line $($CML$)$ are as completely diversified as possible.

IV$.$ Portfolios that lie on the SML are not necessarily completely diversified.

A$.$ I, III and IV

B$.$ I, II$,$ III and IV

C$.$ I, II and IV

If Investor A has a lower risk aversion coefficient than Investor $B,$ will Investor B$\text{'}$s optimal portfolio

most likely have a higher expected return on the capital allocation line?

A No$,$ because Investor B has a lower risk tolerance

$B$ No$,$ because Investor $B$ has a higher risk tolerance

$C$ Yes