Question 21

The ________ mean finds a growth rate.

		arithmetic
		geometric

Question 22

Asset allocation means

		Diversifying among asset classes
		Diversifying within asset classes
		Diversifying between the optimal risky portfolio and the minimum variance portfolio
		Diversifying between the optimal risky portfolio and the risk-free rate

Question 23

What is the annualized holding period return of an investment that cost $60, earned $1.00 in dividends the first year, $1.40 in year two, $1.85 in year three, and $2.00 in year four and was sold for $55 at the end of the fourth year?

		20.5%
		4.8%
		0.5%
		2.1%

Question 24

Which of the following correlation coefficients represents the least amount of co-movement between two assets?

		0.85
		0.15
		-0.15
		-0.85

Question 25

Which is a better measure for predicting a typical years stock price performance?

		geometric mean
		standard deviation
		beta
		arithmetic mean

Question 26

The nominal risk free rate is a function of

		the real risk free rate and the investors variance
		the prime rate and the rate of inflation
		the T-bill rate plus the inflation rate
		the tax free rate plus the rate of inflation
		the real risk free rate plus the rate of inflation

Question 27

Which measure will rank in the same order as Alpha?

		Sharpe
		Treynor
		Both will rank with Alpha
		Neither will rank with Alpha

Question 28

As indicated by mutual fund flows, investors tend to

		beat the market
		seek safety
		invest in last year's winner
		invest in last years loser

Question 29

A mutual fund that was in the top quartile of funds in one year is more likely to be in the top quartile of fund in the next year.

		True
		False

Question 30

Fund A has an expected return of 9.5%, a standard deviation of 15.6% and a beta of 0.95. Fund B has an expected return of 11.5%, a standard deviation of 17.8% and a beta of 1.10. The S&P 500 index has an expected return of 10.5%, a standard deviation of 16.2% and a beta of 1.00. The T-bill has an expected return of 4.5% What would happen if Fund As beta increased to more than the beta of Fund B? Hold all else constant.

		As Treynors ratio would increase and it would be a buy
		As Treynors ratio would increase and it would not be a buy
		As Treynors ratio would decrease and it would be a buy
		As Treynors ratio would decrease and it would not be a buy

Question 31

Fund A has an expected return of 11.4%, a standard deviation of 18.2% and a beta of 1.05. Fund B has an expected return of 12.1%, a standard deviation of 17.8% and a beta of 1.11. Fund C has an expected return of 10.9%, a standard deviation of 16.8% and a beta of 0.90. Fund D has an expected return of 10.75%, a standard deviation of 19.1% and a beta of 0.92. The S&P 500 index has an expected return of 11.5%, a standard deviation of 16.2% and a beta of 1.00. The T-bill has an expected return of 4.5% Which of the following funds has a negative alpha?

		A, B, C, D
		A, B, D
		B, C
		C

Question 32

Fund A has an expected return of 11.4%, a standard deviation of 18.2% and a beta of 1.05. Fund B has an expected return of 12.1%, a standard deviation of 17.8% and a beta of 1.11. Fund C has an expected return of 10.9%, a standard deviation of 16.8% and a beta of 0.90. Fund D has an expected return of 10.75%, a standard deviation of 19.1% and a beta of 0.92. The S&P 500 index has an expected return of 11.5%, a standard deviation of 16.2% and a beta of 1.00. The T-bill has an expected return of 4.5% Which of the following funds has the best expected alpha?

		A
		B
		C
		D

Question 33

Fund A has an expected return of 9.5%, a standard deviation of 15.6% and a beta of 0.95. Fund B has an expected return of 11.5%, a standard deviation of 17.8% and a beta of 1.10. The S&P 500 index has an expected return of 10.5%, a standard deviation of 16.2% and a beta of 1.00. The T-bill has an expected return of 4.5% Which of the funds has an alpha that will plot above the Security Market Line?

		Fund A
		Fund B
		Both Fund A and Fund B
		Neither Fund A or Fund B

Question 34

Fund A has an expected return of 9.5%, a standard deviation of 15.6% and a beta of 0.95. Fund B has an expected return of 11.5%, a standard deviation of 17.8% and a beta of 1.10. The S&P 500 index has an expected return of 10.5%, a standard deviation of 16.2% and a beta of 1.00. The T-bill has an expected return of 4.5% Which of the funds has a Sharpes Ratio that is better than the markets ratio?

		Fund A
		Fund B
		Both Fund A and Fund B
		Neither Fund A or Fund B

Question 35

Fund A has an expected return of 11.4%, a standard deviation of 18.2% and a beta of 1.05. Fund B has an expected return of 12.1%, a standard deviation of 17.8% and a beta of 1.11. Fund C has an expected return of 10.9%, a standard deviation of 16.8% and a beta of 0.90. Fund D has an expected return of 10.75%, a standard deviation of 19.1% and a beta of 0.92. The S&P 500 index has an expected return of 11.5%, a standard deviation of 16.2% and a beta of 1.00. The T-bill has an expected return of 4.5% Which of the following funds is least desirable regarding the coefficient of variation?

		Fund A
		Fund B
		Fund C
		Fund D

Question 36

The bid-ask spread increases if the price level _____ and volatility _____.

		increases; increases
		increases; decreases
		decreases; increases
		decreases; decreases