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Which one of the following returns is the average return you expect to earn in the future on a risky asset? A. realized returnB. expected returnC. market returnD. real returnE. adjusted return B. expected return
What is the extra compensation paid to an investor who invests in a risky asset rather than in a risk-free asset called? A. efficient returnB. correlated valueC. risk premiumD. expected returnE. realized return C. risk premium
A group of stocks and bonds held by an investor is called which one of the following? A. weightsB. groupingC. basketD. portfolioE. bundle D. portfolio
The value of an individual security divided by the portfolio value is referred to as the portfolio: A. beta.B. standard deviation.C. balance.D. weight.E. variance. D. weight.
Diversification is investing in a variety of assets with which one of the following as the primary goal? A. increasing returnsB. minimizing taxesC. reducing some risksD. eliminating all risksE. increasing the variance C. reducing some risks
Correlation is the: A. squared measure of a security's total risk.B. extent to which the returns on two assets move together.C. measurement of the systematic risk contained in an asset. B. extent to which the returns on two assets move together.
The division of a portfolio's dollars among various types of assets is referred to as: A. the minimum variance portfolio.B. the efficient frontier.C. correlation.D. asset allocation.E. setting the investment opportunities. D. asset allocation.
Which one of the following is a collection of possible risk-return combinations available from portfolios consisting of individual assets? A. financial frontierB. efficient portfolioC. allocated setD. investment opportunity set D. investment opportunity set
An efficient portfolio is a portfolio that does which one of the followingA. eliminates all risk while providing an expecB. lies on the vertical axis when graphing expected returns against STDEVC.offers the highest return for a given level of risk C.offers the highest return for a given level of risk
Which one of the following is the set of portfolios that provides the maximum return for a given standard deviation? A. minimum variance portfolioB. Markowitz efficient frontierC. correlated market frontier B. Markowitz efficient frontier
Which of the following are affected by the probability of a state of the economy occurring?I. expected return of individual II. expected return of portfolioIII. STDDEV of an individualIV. STDDEV of portfolio A. I nd II onluB. I,II,III, and IV B. I,II,III, and IV
Which one of the following statements must be true? A. All securities are projected to have higher rates of return whe the economy booms versus when it is normalB. Considering the possible states of the economy emphasizes the fact that multiple outc B. Considering the possible states of the economy emphasizes the fact that multiple outcomes can be realized from an investment.
You own a portfolio of 5 stocks and have 3 expected states of the economy. You have twice as much invested in Stock A as you do in Stock E.A. The weights will be based on the amount investedB. The weights will be based on a combination B. The weights will be based on the amount invested in each stock as a percentage of the total amount invested.
Terry has a portfolio comprised of two individual securities. Which one of the following computations that he might do is NOT a weighted average? A. correlation between the securitiesB. individual security expected return A. correlation between the securities
You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a normal economy. If the probability o a booming economy decreases, your expected return will:A. decreaseB. either remain constant or decrease.C. increase A. decrease.
You own three securities. Security A has an expected return of 11 percent as compared to 14 percent for Security B and 9 percent for Security C.A. The risk premium on Security A exceeds B. Security B has a risk premium that is 50 percent B. Security B has a risk premium that is 50 percent greater than Security A's risk premium.
Which of the following will increase the expected risk premium for a security, all else constant?I. an increase in the security's E(R)II. a decrease in the security's E(R)III. an increase in the RFRIV. a decrease in the RFR D. I and IV only
If the future return on a security is known with absolute certainty, then the risk premium on that security should be equal to: A. zero. B. the risk-free rate.C. the market rate. A. zero.
You own a stock that will produce varying rates of return based upon the state of the economy. Which one of the following will measure the risk associated with owninA. weighted average return B. rate of returnC. variance of the returns C. variance of the returns given the multiple states of the economy
Which of the following affect the expected rate of return for a portfolio?I. weight of each security held in the portfolioII. the probability of various economicIII. the variance of each individualIV. the expected rate of return of e D. I, II, and IV only
You own a portfolio comprised of 4 stocks and the economy has 3 possible states. Assume you invest your portfolio in a manner that results in an expected rate of return of 7.5 percent, portfolios variance?A. negative, but not -1B. -1.0C. 0.0 C. 0.0
As the number of individual stocks in a portfolio increases, the portfolio standard deviation: A. increases at a constant rate.B. remains unchanged.C. decreases at a constant rate.D. decreases at a diminishing rate. D. decreases at a diminishing rate.
Which one of the following is eliminated, or at least greatly reduced, by increasing the number of individual securities held in a portfolio? A. number of economic statesB. various expected C. market riskD. diversifiable risk D. diversifiable risk
Non-diversifiable risk: A. can almost be eliminated by investing in 35 diverse securities.B. remains constant regardless of the number of securities held in a portfolio. B. remains constant regardless of the number of securities held in a portfolio.
Which one of the following correlation coefficients can provide the greatest diversification benefit? A. -1.0B. -0.5C. 0.0D. 0.5E. 1.0 A. -1.0
To reduce risk as much as possible, you should combine assets which have one of the following correlation relationships? A. strong positive B. slightly positive C. slightly negative D. strongly negative D. strongly negative
What is the correlation coefficient of two assets that are uncorrelated? A. -100B. -1C. 0D. 1E. 100 C. 0
How will the returns on two assets react if those returns have a perfect positive correlation?I. move in the same directionII. move in oppositeIII. move by the same IV. move by either equal or A. I and III onlyB. I and IV only B. I and IV only
If two assets have a zero correlation, their returns will: A. always move in the same direction by the same amount.B. always move in the same direction but nC. move randomly and independently of each other. C. move randomly and independently of each other.
Which one of the following correlation relationships has the potential to completely eliminate risk? A. perfectly positiveB. positiveC. negativeD. perfectly negative D. perfectly negative
Assume the returns on Stock X were positive in January, February, April, July, and November. . were positive in January, April, May, July, August, and October and negative the remaining months. Stock X and Stock Y? A. -1.0B. -0.5C. 0.0 C. 0.0
Which one of the following statements is correct? A. A portfolio variance is a weighted average of the variances of the individual securities B. A portfolio variance is dependent upon the portfolio's asset allocation. B. A portfolio variance is dependent upon the portfolio's asset allocation.
A portfolio comprised of which one of the following is most apt to be the minimum variance portfolio? A. 50/50 mix of stocks and bondsB. 30 percent stocks and 70 percent bondsC. 30 percent bonds and 70 percent stocks B. 30 percent stocks and 70 percent bonds
Which one of the following statements is correct concerning asset allocation? A. There is an ideal asset allocation between stocks and bonds given a specified level of risk.B. Asset allocation should play a minor role in portfolio construction. A. There is an ideal asset allocation between stocks and bonds given a specified level of risk.
You currently have a portfolio comprised of 70 percent stocks and 30 percent bonds. Which one of the following must be true if youB. The revised portfolio will be perfectly negatively corrC. The two portfolios could have significantly differe C. The two portfolios could have significantly different standard deviations.
Which one of the following distinguishes a minimum variance portfolio? A. lowest risk portfolio of any possible portfolio given the same securities B. lowest risk portfolio possible given any specified expected rate of return A. lowest risk portfolio of any possible portfolio given the same securities but in differing proportions
Where does the minimum variance portfolio lie in respect to the investment opportunity set? A. lowest point B. highest pointC. most leftward pointD. most rightward point C. most leftward point
Which one of the following correlation coefficients must apply to two assets if the equally weighted portfolio of those assets creates a minimum variance portfolio that has a standard deviation of zero? A. -1.0B. -0.5C. 0.0 A. -1.0
Which one of the following statements about efficient portfolios is correct? A. Any efficient portfolio will lieB. An efficient portfolio will have C. There are multiple efficient D. Any portfolio mix consisting of onl C. There are multiple efficient portfolios that can be constructed using the same two securities.
You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio consisting of two securities.B. Risk-averse investors should select the portfolio C. Some portfolios will be efficient while others will not. C. Some portfolios will be efficient while others will not.
You are graphing the investment opportunity set for a portfolio of two securities with the expected return on the vertical axis and the standacorrelation coefficient of the two securities is +1, A. conical shapeB. linear with an upward slope B. linear with an upward slope
A portfolio that belongs to the Markowitz efficient set of portfolios will have which one of the following characteristics? D. a positive rate of return and a zero standard deviationE. the lowest risk for any given rate of return E. the lowest risk for any given rate of return
You combine a set of assets using different weights such that you produce the following results. expected return 9% , 11%Which one of these portfolios CANNOT be a Markowitz efficient portfolio? A. AB. BC. CD. DE. E E. E
What is the expected return on this stock given the following information? prob= .4, E(R) =16% boomA. -8.07 percentB. -7.69 percentC. -6.80 percentD. -5.70 percentE. -5.22 percent C. -6.80 percent
What is the expected return on this stock given the following information? prob= .05, 16%A. -2.05 percentB. -1.08 percentC. 0.47 percentD. 1.22 percentE. 1.43 percent A. -2.05 percent
What is the expected return on this stock given the following information? prob= .25, E(R) 20%A. 9.36 percentB. 9.74 percentC. 10.85 percentD. 11.78 percentE. 12.05 percent C. 10.85 percent
An investor owns a security that is expected to return 14 percent in a booming economy and 6 percent in a normal economy. The overall expected return on the security is 8.88 %. will boom?A. 28 percentB. 33 percentC. 36 percent C. 36 percent
Rosita owns a stock with an overall expected return of 14.40 percent. The economy is expected to either boom or be normal. There is a 52 percent chance the economy will boom. C. 13.15 percentD. 13.75 percent D. 13.75 percent
What is the expected return on this stock given the following information? prob =.15, rate or return= 22%A. 6.40 percentB. 6.57 percentC. 8.99 percentD. 13.40 percentE. 14.25 percent A. 6.40 percent
The risk-free rate is 4.35 percent. What is the expected risk premium on this security given the following information?prob= .25, E(R) =17%A. 4.09 percentB. 4.54 percentC. 5.25 percentD. 5.87 percentE. 6.15 percent C. 5.25 percent
The risk-free rate is 4.15 percent. What is the expected risk premium on this stock given the following information?prob= .35, rate or return =.14A. 5.88 percentB. 5.95 percentC. 6.10 percentD. 6.23 percentE. 6.27 percent B. 5.95 percent
The risk-free rate is 4.20 percent. What is the expected risk premium on this stock given the following information?prob= .28, rate of return= 23%A. 5.85 percentB. 6.59 percentC. 8.22 percentD. 10.16 percent D. 10.16 percent
There is a 30 percent probability that a particular stock will earn a 17 percent return and a 70 percent probability that it will earn 11 percent. free rate if the risk premium on the stock is 8.60 percent? A. 4.20 percentB. 4.80 percent A. 4.20 percent
Tall Stand Timber stock has an expected return of 16.8 percent. What is the risk-free rate if the risk premium on the stock is 12.1 percent? A. 4.70 percentB. 5.30 percentC. 5.67 percentD. 6.55 percent A. 4.70 percent
What is the variance of the expected returns on this stock? prob= .4, rate of return =15%A. 1.21B. 1.42C. 1.56D. 3.84E. 4.03 D. 3.84
What is the variance of the expected returns on this stock?prob=.3, E(R) =25%A. 16.09B. 35.49C. 61.53D. 78.97E. 80.03 B. 35.49
What is the variance of the returns on a security given the following information? prob= .05, rate= 27%A. 239.77B. 284.05C. 321.16D. 347.15E. 362.98 D. 347.15
What is the variance of the returns on a security given the following information? prob= .25, E(R)= 16%A. 48.18B. 56.23C. 64.38D. 72.87E. 91.35 E. 91.35
What is the standard deviation of the returns on this stock?prob=.27 rate=6%A. 3.33 percentB. 4.62 percentC. 5.01 percentD. 5.77 percentE. 6.06 percent D. 5.77 percent
What is the standard deviation of the returns on this stock?prob=.22 ; E(R)=24%A. 223.94 percentB. 24.08 percentC. 24.17 percentD. 25.72 percentE. 26.90 percent D. 25.72 percent
What is the standard deviation of a security which has the following expected returns? prob = .10, rate=19%A. 7.48 percentB. 7.61 percentC. 7.67 percentD. 7.82 percentE. 7.91 percent B. 7.61 percent
A portfolio consists of the following securities. What is the portfolio weight of stock B? shares=200, pps = 48$A. .226B. .239C. .245D. .251E. .257 A. .226
A portfolio consists of the following securities. What is the portfolio weight of stock X? shares= 600, price = 17$A. .183B. .202C. .219D. .246E. .285 B. .202
Travis has a portfolio consisting of two stocks, A and B, which is valued at $53,800. Stock A is worth $23,900. What is the portfolio weight of stock B? A. .528B. .543C. .549D. .551E. .556 E. .556
Alicia has a portfolio consisting of two stocks, X and Y, which is valued at $89,100. Stock X is worth $57,800. What is the portfolio weight of stock Y? A. .351B. .390C. .523D. .610E. .649 A. .351
You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B. What is the expected rate of return on this portfolio? prob=.2 A=15%, B=9% A. 12.76 percentB. 12.88 percentC. 13.44 percent A. 12.76 percent
You have a portfolio which is comprised of 65 percent of stock A and 35 percent of stock B. What is the expected rate of return on this portfolio? prob = .15, rate A=17%, rate B=12%A. 5.45 percentB. 6.62 percentC. 7.14 percent A. 5.45 percent
You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B. What is the expected rate of return on this portfolio? prob=.18, A=22%, B=14%A. 9.67 percentB. 9.88 percentC. 10.03 percent A. 9.67 percent
You have a portfolio which is comprised of 75 percent of stock A and 25 percent of stock B. What is the expected rate of return on this portfolio? prob = .1, rate A=24%, rate B = 15%A. 10.70 percentB. 10.87 percentC. 11.13 percent C. 11.13 percent
You have a portfolio which is comprised of 72 percent of stock A and 28 percent of stock B. What is the variance of this portfolio?prob=.6, a=12%, b=22%A. 190.9B. 203.8C. 268.1D. 290.9E. 306.9 E. 306.9
You have a portfolio which is comprised of 44 percent of stock A and 56 percent of stock B. What is the variance of this portfolio?prob= .82, rate A = 12% ,rate B=14%A. 57.86B. 61.05C. 66.84D. 70.15E. 75.93 D. 70.15
You have a portfolio which is comprised of 35 percent of stock A and 65 percent of stock B. What is the standard deviation of this portfolio? prob=.15, a=22%,B=19% A. 4.39 percentB. 5.68 percentC. 6.41 percentD. 7.14 percent C. 6.41 percent
Roger has a portfolio comprised of $8,000 of stock A and $12,000 of stock B. What is the standard deviation of this portfolio?A. 4.67 percentB. 9.97 percentC. 7.23 percent B. 9.97 percent
You have a portfolio which is comprised of 20 percent of stock A and 80 percent of stock B. What is the portfolio standard deviation? prob = .1, A=19%, B=13% A. 4.00 percentB. 5.56 percentC. 6.07 percent B. 5.56 percent
You have a portfolio which is comprised of 48 percent of stock A and 52 percent of stock B. What is the standard deviation of this portfolio? prob=.2, rate a= 8%, rate b=17% A. 1.98 percentB. 2.06 percentC. 2.13 percent B. 2.06 percent
Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 8 percent per year. The correlation between stock A and stock B is .40. lt. What is your portfolio variance? A. .01143B. .01214C. .01329 A. .01143
Stock X has a standard deviation of 22 percent per year and stock Y has a standard deviation of 8 percent per year. The correlation between stock A and stock B is .21.t. What is your portfolio variance? A. .02022B. .02156C. .02239 A. .02022
Stock A has a standard deviation of 15 percent per year and stock B has a standard deviation of 21 percent per year. stock A and stock B is .30. weight of 60 percent. A. 14.87 percentB. 15.50 percentC. 16.91 percent B. 15.50 percent
Stock X has a standard deviation of 21 percent per year and stock Y has a standard deviation of 6 percent per year. The correlation between stock A and stock B is .38. 42% A. 8.89 percentB. 9.85 percentC. 10.64 percent C. 10.64 percent
A stock fund has a standard deviation of 17 percent and a bond fund has a standard deviation of 8 percent. The correlation of the two funds is .24. What is the approximate weight of the stock fund in theA. 11 percentB. 15 percent A. 11 percent
A stock fund has a standard deviation of 16 percent and a bond fund has a standard deviation of 4 percent. The correlation of the two funds is .11. What is the weight of the stock fund in the minimum varia A. 3.47 percentB. 6.48 percent A. 3.47 percent

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