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5 Written questions

5 Matching questions

  1. 32. Consider two perfectly negatively correlated risky securities, A and B. Security A has an expected rate of return of 16% and a standard deviation of return of 20%. B has an expected rate of return 10% and a standard deviation of return of 30%. The weight of security B in the global minimum variance is __________.
    a. 10%
    b. 20%
    c. 40%
    d. 60%
  2. 30. A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 35% while stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A and B is 0.45. Stock A comprises 40% of the portfolio while stock B comprises 60% of the portfolio. The standard deviation of the return on this portfolio is __________.
    a. 23.00%
    b. 19.76%
    c. 18.45%
    d. 17.67%
  3. 54. A security's beta coefficient will be negative if _____________.
    a. Its returns are negatively correlated with market index returns
    b. Its returns are positively correlated with market index returns
    c. Its stock price has historically been very stable
    d. Market demand for the firm's shares is very low
  4. 4. Based on the outcomes in the table below choose which of the statements is/are correct:
    I. The covariance of Security A and Security B is zero
    II. The correlation coefficient between Security A and C is negative
    III. The correlation coefficient between Security B and C is positive
    a. I only
    b. I and II only
    c. II and III only
    d. I, II and III
  5. 64. The beta of this stock is _____.
    a. 0.12
    b. 0.35
    c. 1.32
    d. 4.05
  1. a C. 40%
  2. b C. 1.32
  3. c B. 19.76%
  4. d A. Its returns are negatively correlated with market index returns
  5. e B. I and II only

5 Multiple choice questions

  1. A. 2rp < (W1212 + W1212)
  2. C. 43%
  3. C. The weighted sum of the securities' covariances
  4. D. I, II and III
  5. B. The difference between the rate of return earned and the risk-free rate

5 True/False questions

  1. 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%
    C. 85%

          

  2. 25. Rational risk-averse investors will always prefer portfolios ______________.
    a. Located on the efficient frontier to those located on the capital market line
    b. Located on the capital market line to those located on the efficient frontier
    c. At or near the minimum variance point on the efficient frontier
    d. That are risk-free to all other asset choices
    B. Located on the capital market line to those located on the efficient frontier

          

  3. 46. Stock A has a beta of 1.2 and Stock B has a beta of 1. The returns of Stock A are ______ sensitive to changes in the market as the returns of Stock B.
    a. 20% more
    b. Slightly more
    c. 20% less
    d. Slightly less
    B. 0.75

          

  4. 43. Semitool Corp has an expected excess return of 5% for next year. However for every unexpected 1% change in the market, Semitool's return responds by a factor of 1.3. Suppose it turns out the economy and the stock market do better than expected by 1.5% and Semitool's products experience more rapid growth than anticipated, pushing up the stock price by another 1%. Based on this information what was Semitool's actual excess return?
    a. 7.50%
    b. 6.95%
    c. 8.25%
    d. 7.95%
    D. 7.95%

          

  5. 86. Which stock is riskier to a non-diversified investor who puts all his money in only one of these stocks?
    a. Stock A is riskier
    b. Stock B is riskier
    c. Both stocks are equally risky
    d. You cannot tell from the information given
    A. Stock A is riskier