QUESTION 9

1. No diversification benefits can be achieved by combining securities in a portfolio when the correlation between the securities is _____________.

   		1
   		less than 1
   		between 0 and 1
   		less than or equal to 0

QUESTION 10

1. You invest 50% of your money in IBM stock and 50% of your money in Microsoft stock. The volatilities of returns on IBM and Microsoft stocks are 8% and 12%, respectively. If the correlation between IBM and Microsofts stock returns is 0.6, what is the volatility of return on your investment?

   		6.98%
   		7.21%
   		8.99%
   		9.12%

QUESTION 11

1. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 35% and 65% respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 10%, you should invest approximately __________ in the risky portfolio. This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y, respectively.

   		78%; 27%; 51%
   		25%; 45%; 30%
   		40%; 24%; 16%
   		50%; 30%; 20%

QUESTION 12

1. Which of the following correlation coefficients will produce the most diversification benefits?

   		-0.5
   		-0.3
   		0
   		1