5 Written questions
4 Matching questions
 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  44. The part of a stock's return that is systematic is a function of which of the following variables?
I. Volatility in excess returns of the stock market
II. The sensitivity of the stock's returns to changes in the stock market
III. The variance in the stock's returns that is unrelated to the overall stock market
a. I only
b. I and II only
c. II and III only
d. I, II and III  39. An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24% while the standard deviation on stock B is 14%. The correlation coefficient between the return on A and B is 0.35. The expected return on stock A is 25% while on stock B it is 11%. The proportion of the minimum variance portfolio that would be invested in stock B is __________.
a. 45%
b. 67%
c. 85%
d. 92%  73. What is the most likely correlation coefficient between a stock index mutual fund and the S&P 500?
a. 1.0
b. 0.0
c. 1.0
d. 0.50
 a C. 1.0
 b A. Asset allocation, stock selection
 c C. 85%
 d B. I and II only
5 Multiple choice questions
 C. 40%
 C. 21.4%
 B. Increase the unsystematic risk of the portfolio
 D. Unique risk
 C. Correlation coefficient between ACE and the market has risen
5 True/False questions

71. Which of the following correlations coefficients will produce the least diversification benefit?
a. 0.6
b. 1.5
c. 0.0
d. 0.8 → C. Average return 
13. Beta is a measure of __________.
a. Firm specific risk
b. Diversifiable risk
c. Market risk
d. Unique risk → C. 1.32 
8. The ________ is equal to the square root of the systematic variance divided by the total variance.
a. Covariance
b. Correlation coefficient
c. Standard deviation
d. Rewardtovariability ratio → B. I and II only 
67. ____ percent of the variance is explained by this regression
a. 12
b. 35
c. 4.05
d. 80 → A. 12 
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 / (n1)
b. N * (n1)
c. (n1) / n
d. (n1) * n → B. 5%