Diversification can occur by combining two assets with __________. [I] negative correlation [II] zero correlation [III] less than 1 positive correlation

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

The expected return of portfolio XYZ is 8%. If the portfolio XYZs variance is 20%, and risk-free rate is 3%, what is the Sharpe Ratio of the portfolio?

		0.05
		0.112
		0.179
		0.25
		None of the above

The optimal risky portfolio maximizes the____________. [I] expected returns [II] Sharpe ratio [III] downside risk protection

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

The standard deviation of stock A is .60, while the standard deviation of stock B is .80. If the correlation coefficient for A and B is -1 < _A,B < 1, then a portfolio that consists of stock A and stock B MUST have a variance _________. Assume no short selling allowed.

		Greater than 0.6
		Less than 0.8
		Greater than 0.8
		Less than 0.64
		Not enough information

If the CAPM is valid and all portfolios are priced correctly, which of the situations below is/are NOTpossible? Consider each situation independently, and assume the risk-free rate is 5%.

Situation A					Situation B
Portfolio		Expected Return	BETA		Portfolio	Expected Return	BETA
RISKFREE		5%	0		RISKFREE	5%	0
MARKET		10%	1.0		ABC	13.2%	1.0
ABC		11.5%	1.3		XYZ	14%	0.8
			Situation A only
			Situation B only
			Situation A and B
			Neither situation