Investment mgt 5,13,6,7,9,1,2,3, Exam Study Guide.
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Investment mgt 5,13,6,7,9,1,2,3, Exam Study
Guide.
Chapter 5 - answerchapter 5
risk can be totally eliminated by combining two assets that are perfectly positively correlated -
answerfalse
A portfolio that offers the lowest risk for a given level of return is known as an efficient
portfolio. ...
Investment mgt 5,13,6,7,9,1,2,3, Exam Study
Guide.
Chapter 5 - answer✔chapter 5
risk can be totally eliminated by combining two assets that are perfectly positively correlated -
answer✔false
A portfolio that offers the lowest risk for a given level of return is known as an efficient
portfolio. - answer✔true
investing globally offers better diversification than investing only domestically - answer✔true
beta measures diversifiable risk while standard deviation measures systematic risk -
answer✔false
Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.
- answer✔true
Melissa owns the following portfolio of stocks. What is the return on her portfolio?
Stock Weight Return on Stock
A 0.3 17%
B 0.2 11%
C 0.5 15% - answer✔14.80%
Which of the following represent diversifiable (unsystematic) risks?
I. the president of Google company suddenly resigns
II. the economy goes into a recessionary period
IV. the Federal Reserve unexpectedly changes interest rates - answer✔I and III only
Systematic risks - answer✔are forces that affect all investment categories.
Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0. This
information indicates that - answer✔security B has 20% more systematic risk than the market.
If the actual rate of return on an investment portfolio is constant from year to year, the standard
deviation of that portfolio is zero. - answer✔true
An efficient portfolio maximizes the rate of return without consideration of risk. - answer✔false
Melissa owns the following portfolio of stocks. What is the return on her portfolio?
Stock Amount invested Return on stock
A $8,000 17.5%
B $4,000 11.0%
C $12,000 4.3% - answer✔9.8%
A portfolio consisting of four stocks is expected to produce returns of 9%, 11%, 3% and 17%,
respectively, over the next four years. What is the standard deviation of these expected returns? -
answer✔5.77%
Negatively correlated assets reduce risk more than positively correlated assets. - answer✔true
Correlation is a measure of the relationship between two series of numbers. - answer✔true
Studies have shown that investing in different industries as well as different countries reduces
portfolio risk. - answer✔true
Maximum international diversification can be achieved by investing solely in U.S. multinational
corporations. - answer✔false
If there is no relationship between the rates of return of two assets over time, these assets are -
answer✔uncorrelated
Combining uncorrelated assets should - answer✔decrease the overall risk level of a portfolio.
Over the long term, a portfolio consisting of an S&P 500 index and an EAFE index will
generally produce ________ returns and have ________ risk than a portfolio comprised solely of
the S&P 500 index. - answer✔higher; less
American depositary shares (ADS) are - answer✔shares of foreign companies traded on the U.S.
markets.
Betas must be positive numbers. - answer✔false
A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42. - answer✔false
Which one of the following conditions can be effectively eliminated through portfolio
diversification? - answer✔increased government regulation of auto emissions
In designing a portfolio, the only relevant risk is - answer✔nondiversifiable risk.
The beta of the market is - answer✔1.0
When the stock market has bottomed out and is beginning to recover, the best portfolio to own is
the one with a beta of - answer✔+2.0
The basic theory linking risk and return is the Capital Asset Pricing Model. - answer✔true
According to the CAPM, the required rate of a return on a stock can be estimated using only beta
and the risk-free rate. - answer✔false
The following data has been gathered concerning a particular investment and conditions in the
market.
According to the Capital Asset Pricing Model, the required return for this investment is -
answer✔13.3%
OKAY stock has a beta of 0.73. The market as a whole is expected to decline by 20% thereby
causing OKAY stock to - answer✔decline by 14.6%
When the Capital Asset Pricing Model is depicted graphically, the result is the - answer✔security
market line.
What is the expected return on a stock with a beta of 1.09, a market risk premium of 8%, and a
risk-free rate of 4%? - answer✔12.72%
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