5 Written questions
5 Matching questions
- 21. Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that
a. The returns on the stock and bond portfolio tend to move inversely
b. The returns on the stock and bond portfolio tend to vary independently of each other
c. The returns on the stock and bond portfolio tend to move together
d. The covariance of the stock and bond portfolio will be positive
- 69. Decreasing the number of stocks in a portfolio from 50 to 10 would likely __________________________.
a. Increase the systematic risk of the portfolio
b. Increase the unsystematic risk of the portfolio
c. Increase the return of the portfolio
d. Decrease the variation in returns the investor faces in any one year
- An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 10%.
33. The proportion of the optimal risky portfolio that should be invested in stock A is __________.
- 80. What is the standard deviation of a portfolio of two stocks given the following data? Stock A has a standard deviation of 18%. Stock B has a standard deviation of 14%. The portfolio contains 40% of stock A and the correlation coefficient between the two stocks is -.23.
- 11. Diversification is most effective when security returns are __________.
b. Negatively correlated
c. Positively correlated
- a A. 0%
- b B. Negatively correlated
- c A. 9.7%
- d B. Increase the unsystematic risk of the portfolio
- e B. The returns on the stock and bond portfolio tend to vary independently of each other
5 Multiple choice questions
- B. Variance
- A. 32%
- D. Engaging in active portfolio management to enhance returns
- D. Unique risk
- C. III and IV only
5 True/False questions
49. You are constructing a scatter plot of excess returns for Stock A versus the market index. If the correlation coefficient between Stock A and the index is -1 you will find that the points of the scatter diagram ______________________ and the line of best fit has a _______________.
a. All fall on the line of best fit; positive slope
b. All fall on the line of best fit; negative slope
c. Are widely scattered around the line; positive slope
d. Are widely scattered around the line; negative slope → B. All fall on the line of best fit; negative slope
2. The _______ decision should take precedence over the _____ decision.
a. Asset allocation, stock selection
b. Choice of fad, mutual fund selection
c. Stock selection, asset allocation
d. Stock selection, mutual fund selection → A. Asset allocation, stock selection
23. On a standard expected return vs standard deviation graph investors will prefer portfolios that lie to the
d. Southwest → A. Northeast
67. ____ percent of the variance is explained by this regression
d. 80 → D. 16%
42. A measure of the riskiness of an asset held in isolation is _____________.
b. Standard deviation
d. Semi-variance → D. Beta