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5 Written questions

5 Matching questions

  1. 61. Which of the following provides the best example of a systematic risk event?
    a. A strike by union workers hurts a firm's quarterly earnings
    b. Mad Cow disease in Montana hurts local ranchers and buyers of beef
    c. The Federal Reserve increases interest rates 50 basis points
    d. A senior executive at a firm embezzles $10 million and escapes to South America
  2. 35. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is__________.
    a. 0%
    b. 5%
    c. 7%
  3. 41. An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 15%. The correlation coefficient between the return on A and B is 0%. The standard deviation of return on the minimum variance portfolio is __________.
    a. 0%
    b. 6%
    c. 12%
    d. 17%
  4. 12. The variance of a portfolio of risky securities is __________.
    a. The sum of the securities' covariances
    b. The sum of the securities' variances
    c. The weighted sum of the securities' covariances
    d. The weighted sum of the securities' variances
  5. 20. Harry Markowitz is best known for his Nobel prize winning work on ______________.
    a. Strategies for active securities trading
    b. Techniques used to identify efficient portfolios of risky assets
    c. Techniques used to measure the systematic risk of securities
    d. Techniques used in valuing securities options
  1. a B. 5%
  2. b C. The weighted sum of the securities' covariances
  3. c C. The Federal Reserve increases interest rates 50 basis points
  4. d C. 12%
  5. e B. Techniques used to identify efficient portfolios of risky assets

5 Multiple choice questions

  1. D. Beta
  2. C. Average return
  3. A. 0.583
  4. B. Standard deviation
  5. D. All of the above

5 True/False questions

  1. 26. The optimal risky portfolio can be identified by finding _____________.
    I. the minimum variance point on the efficient frontier
    II. the maximum return point on the efficient frontier the minimum variance point on the efficient frontier
    III. the tangency point of the capital market line and the efficient frontier
    IV. the line with the steepest slope that connects the risk free rate to the efficient frontier
    a. I and II only
    b. II and III only
    c. III and IV only
    d. I and IV only
    C. III and IV only

          

  2. 75. Investing in two assets with a correlation coefficient of 1.0 will reduce which kind of risk?
    a. Market risk
    b. Unique risk
    c. Unsystematic risk
    d. With a correlation of 1.0, no risk will be reduced
    D. With a correlation of 1.0, no risk will be reduced

          

  3. 67. ____ percent of the variance is explained by this regression
    a. 12
    b. 35
    c. 4.05
    d. 80
    A. 12

          

  4. 16. Consider an investment opportunity set formed with two securities that are perfectly negatively correlated. The global minimum variance portfolio has a standard deviation that is always __________.
    a. Equal to the sum of the securities standard deviations
    b. Equal to -1
    c. Equal to 0
    d. Greater than 0
    C. Equal to 0

          

  5. 15. To eliminate the bias in calculating the variance and covariance of returns from historical data the average squared deviation must be multiplied by __________.
    a. N / (n-1)
    b. N * (n-1)
    c. (n-1) / n
    d. (n-1) * n
    A. N / (n-1)

          

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