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FINC-315 Exam one
Terms in this set (11)
Consider the following statements:
Statement 1: A risk‐averse investor can attain a better risk-return tradeoff by investing a portion of his portfolio in Asset A, which is riskier than his current portfolio, only if the correlation between his current portfolio and Asset A is negative.
Statement 2: A more risk‐averse investor will have a steeper indifference curve than a less risk‐averse investor.
Which of the following is most likely?
Only statement 2 is correct.
Which of the following most likely have the shortest time horizon for their investment portfolios?
- Pension Plans
Banks have shorter time horizons
Temporary deviations from the portfolios strategic asset allocation in pursuit of short term gains are known as:
Tactical Asset Allocation
Which of the following institutional investors is most likely to have a low tolerance for investment risk and relatively high liquidity needs? A Insurance company
B Defined-benefit pension plan
C Charitable foundation
Insurance Company to pay claims when they are due
An analyst uses a multi-factor model to estimate the expected returns of various securities. The model analyzes historical and cross-sectional return data to identify factors that explain the variance or covariance in the securities' observed returns. This model is most likely a:
A statistical factor model.
B macroeconomic factor model.
C fundamental factor model.
Statistical factor models use historical and cross-sectional return data to identify factors that explain the variance or covariance in the observed returns of securities
With respect to the portfolio management process, asset allocation decisions are most likely made in the:
A factor that most likely measures a persons ability to bear risk is their:
A portfolio with equal parts invested in a risk free asset and a risky portfolio will most likely lie on:
A capital asset allocation line (Shows possible combinations of risk free asset and risky portfolio)
Which of the following is mostly true about the security market line? A. Asset on the security market line are perfectly correlated.
B. It can be used to estimate the 1-year target required rate of return of any asset.
C. Each asset on the security market line has the same reward-to-risk measured by its Treynor ratio.
Each asset on the security market line has the same reward to risk measured by its Treynor ratio
Which of the following is false regarding the separation theorem?
A. the investor identifies risky assets with positive alpha (excess return)
B. the investor identifies the optimal risky portfolio
C. the investor identifies the allocation to the risk-free asset (lending or borrowing)
The investor identifies risky assets with positive alpha
Which of the following about the efficient frontier and the global minimum variance portfolio is most accurate?
A. As risk decreases, the efficient frontier offers decreases in returns at a decreasing rate.
B. The global minimum-variance portfolio has a beta of zero.
C. Moving towards the right further away from the global minimum variance portfolio, portfolio returns increase at a decreasing rate.
Moving towards the right further away from the global minimum variance portfolio, portfolio returns increase at a decreasing rate
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