Many kind of present and also reworn down Enron Corp. employees had their 401k retirement accounts wiped out as soon as Enron collapsed bereason ________.

You are watching: The term excess return refers to ______________.

they had to pay huge fines for obstruction of justice

their 401k accounts were organized outside the company

their 401k accounts were not well diversified

none of these options


*

Based on the outcomes in the complying with table, select which of the statements listed below is (are) correct?

I. The covariance of security A and also defense B is zero.

II. The correlation coreliable between securities A and also C is negative.

The correlation coefficient between securities B and also C is positive.

I only

I and also II only

II and also III only

I, II, and III


Asset A has an supposed rerevolve of 15% and also a reward-to-variability ratio of .4. Ascollection B has an supposed return of 20% and a reward-to-varicapacity proportion of .3. A risk-averse investor would like a portfolio using the risk-complimentary asset and ______.

asset A

ascollection B

no risky asset

The answer cannot be determined from the information provided.


Adding added risky assets to the investment opportunity set will certainly primarily relocate the efficient frontier _____ and to the ______.

up; right

up; left

down; right

down; left


An investor"s degree of risk avariation will recognize his or her ______.

optimal riskies portfolio

risk-free rate

optimal mix of the risk-totally free asset and riskies asset

capital allocation line


The ________ is equal to the square root of the organized variance divided by the complete variance.

covariance

correlation coefficient

standard deviation

reward-to-variability ratio


Which of the following statistics cannot be negative?

A. covarianceB. varianceC. E(r) D. correlation coefficient


10. Ascollection A has actually an intended rerevolve of 20% and also a conventional deviation of 25%. The risk-complimentary price is 10%. What is the reward-to-variability ratio?

A. .40

B. .50

C. .75

D. .80


11. The correlation coreliable between two assets equals _________.

their covariance separated by the product of their variances

the product of their variances separated by their covariance

the amount of their meant returns split by their covariance

their covariance divided by the product of their traditional deviations


12. Diversification is many reliable as soon as security returns are _________.

high

negatively correlated

positively correlated

uncorrelated


13. The meant price of return of a portfolio of riskies securities is _________.

A. the sum of the securities" covarianceB. the amount of the securities" varianceC. the weighted amount of the securities" meant returnsD. the weighted sum of the securities" variance


14. Beta is a meacertain of defense responsiveness to _________.

firm-particular risk

diversifiable risk

industry risk

unique risk


15. The threat that can be diversified away is __________.

beta

firm-certain risk

sector risk

methodical risk


16. Approximately just how many securities does it require to diversify virtually every one of the distinct hazard from a portfolio?

2

6

8

20


17. Consider an investment opportunity collection developed with two securities that are perfectly negatively correlated. The international minimum-variance portfolio has a traditional deviation that is constantly _________.

equal to the amount of the securities" conventional deviations

equal to -1

equal to 0

greater than 0


18. Market threat is additionally called __________ and _________.

systematic risk; diversifiable risk

systematic risk; nondiversifiable risk

distinct risk; nondiversifiable risk

unique risk; diversifiable risk


19. Firm-particular threat is also called __________ and also __________.

methodical risk; diversifiable risk

organized risk; nondiversifiable risk

distinctive risk; nondiversifiable risk

distinctive risk; diversifiable risk


20. Which one of the complying with stock return statistics fluctuates the most over time?

A. covariance of returnsB. variance of returnsC. average returnD. correlation coefficient


21. Harry Markowitz is ideal well-known for his Nobel Prize-winning work on _____________.

tactics for active securities trading

techniques used to determine reliable portfolios of risky assets

approaches used to measure the organized hazard of securities

techniques offered in valuing securities options


22. Suppose that a stock portfolio and a bond portfolio have a zero correlation. This means that ______.

the retransforms on the stock and also bond portfolios tend to move inversely

the retransforms on the stock and bond portfolios tend to differ individually of each other

the returns on the stock and bond portfolios tfinish to relocate together

the covariance of the stock and also bond portfolios will certainly be positive


You put half of your money in a stock portfolio that has actually an intended return of 14% and a typical deviation of 24%. You put the remainder of your money in a risky bond portfolio that has actually an supposed rerotate of 6% and a traditional deviation of 12%. The stock and also bond portfolios have actually a correlation of .55. The typical deviation of the resulting portfolio will be ________________.

even more than 18% however less than 24%

equal to 18%

even more than 12% but less than 18%

equal to 12%


24. On a typical expected rerotate versus standard deviation graph, investors will certainly prefer portfolios that lie to the _____________ the current investment possibility collection.

left and above

left and also below

appropriate and also above

best and below


25. The term finish portfolio describes a portfolio consisting of _________________.

the risk-complimentary asset unified through at least one risky asset

the industry portfolio combined through the minimum-variance portfolio

securities from domestic sectors merged via securities from foreign markets

common stocks unified with bonds


26. Rational risk-averse investors will always favor portfolios _____________.

located on the effective frontier to those located on the capital industry line

situated on the funding sector line to those situated on the effective frontier

at or near the minimum-variance allude on the reliable frontier

that are risk-cost-free to all various other ascollection choices


27. The optimal riskies portfolio deserve to be identified by finding:

I. The minimum-variance point on the effective frontier

II. The maximum-rerevolve suggest on the effective frontier and also the minimum-variance suggest on the reliable frontier

III. The tangency allude of the resources industry line and also the reliable frontier

IV. The line with the steepest slope that connects the risk-cost-free rate to the effective frontier

I and II only

II and III only

III and also IV only

I and IV only


28. The _________ reward-to-varicapability ratio is discovered on the ________ funding industry line.

lowest; steepest

highest; flattest

highest; steepest

lowest; flattest


29. A portfolio is composed of 2 stocks, A and also B. Stock A has a conventional deviation of return of 24%, while stock B has a traditional deviation of rerotate of 18%. Stock A comprises 60% of the portfolio, while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is

.0380, the correlation coefficient between the retransforms on A and B is _________.

A. .583

B. .225

C. .327

D. .128


30. The typical deviation of rerotate on investment A is .10, while the traditional deviation of return on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coeffective in between the retransforms on A and also B is _________.

A. .12

B. .36

C. .60

D. .77


31. A portfolio is written of two stocks, A and B. Stock A has actually a typical deviation of rerevolve of 35%, while stock B has actually a typical deviation of rerevolve of 15%. The correlation coeffective in between the retransforms on A and also B is .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 _________.

23%

19.76%

18.45%

17.67%


32. The traditional deviation of rerevolve on investment A is .10, while the standard deviation of return on investment B is .04. If the correlation coefficient in between the retransforms on A and B is -.50, the covariance of retransforms on A and B is _________.

-.0447

-.0020

.0020

.0447


33. Consider two perfectly negatively associated riskies securities, A and B. Security A has actually an expected price of rerevolve of 16% and also a standard deviation of return of 20%. B has actually an meant rate of rerevolve of 10% and also a conventional deviation of rerotate of 30%. The weight of security B in the minimum-variance portfolio is _________.

10%

20%

40%

60%


34. An investor can style a riskies portfolio based on 2 stocks, A and B. Stock A has an meant rerotate of 18% and also a typical deviation of rerevolve of 20%. Stock B has an intended return of 14% and a traditional deviation of rerevolve of 5%. The correlation coeffective between the retransforms of A and also B is .50. The risk-cost-free price of return is 10%. The proportion of the optimal risky portfolio that must be invested in stock A is _________.

0%

40%

60%

100%


An investor have the right to design a risky portfolio based upon 2 stocks, A and B. Stock A has actually an supposed rerevolve of 18% and also a conventional deviation of rerotate of 20%. Stock B has an expected rerevolve of 14% and a standard deviation of return of 5%. The correlation coeffective in between the returns of A and B is .50. The risk-free rate of rerevolve is 10%. The intended rerotate on the optimal risky portfolio is _________.

14%

15.6%

16.4%

18%


An investor have the right to design a risky portfolio based on 2 stocks, A and B. Stock A has actually an meant rerotate of 18% and also a typical deviation of return of 20%. Stock B has actually an meant return of 14% and a typical deviation of rerevolve of 5%. The correlation coreliable between the returns of A and also B is .50. The risk-free price of rerotate is 10%. The conventional deviation of rerotate on the optimal risky portfolio is _________.

0%

5%

7%

20%


An investor deserve to architecture a risky portfolio based on 2 stocks, A and B. Stock A has an intended rerotate of 21% and a traditional deviation of rerotate of 39%. Stock B has an meant rerevolve of 14% and a conventional deviation of rerevolve of 20%. The correlation coefficient between the returns of A and B is .4. The risk-cost-free price of return is 5%. The propercent of the optimal riskies portfolio that have to be invested in stock B is approximately

_________.

29%

44%

56%

71%


An investor deserve to architecture a riskies portfolio based on 2 stocks, A and also B. Stock A has an meant rerevolve of 21% and also a conventional deviation of return of 39%. Stock B has an meant rerevolve of 14% and a traditional deviation of return of 20%. The correlation coefficient between the returns of A and also B is .4. The risk-complimentary rate of rerotate is 5%. The meant rerotate on the optimal risky portfolio is roughly _________. (Hint: Find weights initially.)

14%

16%

18%

19%


39. An investor deserve to design a risky portfolio based on 2 stocks, A and also B. Stock A has an expected return of 21% and also a traditional deviation of rerotate of 39%. Stock B has actually an intended rerotate of 14% and also a standard deviation of rerotate of 20%. The correlation coefficient between the returns of A and also B is .4. The risk-complimentary rate of rerotate is 5%. The conventional deviation of retransforms on the optimal riskies portfolio is _________.

25.5%

22.3%

21.4%

D. 20.7%


40. An investor deserve to design a risky portfolio based upon 2 stocks, A and B. The traditional deviation of return on stock A is 24%, while the conventional deviation on stock B is 14%. The correlation coreliable in between the retransforms on A and B is .35. The expected rerotate on stock A is 25%, while on stock B it is 11%. The propercentage of the minimum-variance portfolio that would be invested in stock B is approximately _________.

45%

67%

85%

92%


41. An investor have the right to architecture a risky portfolio based on 2 stocks, A and B. The standard deviation of return on stock A is 20%, while the typical deviation on stock B is 15%. The correlation coeffective between the returns on A and also B is 0%. The rate of rerotate for stocks A and B is 20 and also 10 respectively. The supposed rerotate on the minimum-variance portfolio is around _________.

10%

13.6%

15%

19.41%


42. An investor can style a riskies portfolio based on two stocks, A and also B. The traditional deviation of rerevolve on stock A is 20%, while the traditional deviation on stock B is 15%. The correlation coreliable in between the retransforms on A and also B is 0%. The typical deviation of rerotate on the minimum-variance portfolio is _________.

0%

6%

12%

17%


43. A meacertain of the riskiness of an ascollection organized in isolation is ____________.

beta

standard deviation

covariance

alpha


44. Semitool Corp. has actually an expected excess rerevolve of 6% for next year. However, for eincredibly unintended 1% adjust in the sector, Semitool"s return responds by a aspect of 1.2. Suppose it turns out that the economy and also the stock sector do much better than supposed by 1.5% and Semitool"s commodities experience even more rapid development than anticipated, pushing up the stock price by one more 1%. Based on this information, what was Semitool"s actual excess return?

7%

8.5%

8.8%

9.25%


45. The component of a stock"s rerevolve that is systematic is a role of which of the complying with variables?

I. Volatility in excess retransforms of the stock market

II. The sensitivity of the stock"s returns to transforms in the stock market

The variance in the stock"s retransforms that is unconcerned the all at once stock market

I only

I and also II only

II and also III only

I, II, and also III


46. Stock A has actually a beta of 1.2, and also stock B has actually a beta of 1. The retransforms of stock A are ______ sensitive to changes in the industry than are the retransforms of stock B.

20% more

slightly more

20% less

slightly less


47. Which danger can be partly or completely diversified amethod as added securities are included to a portfolio?

I. Total risk

II. Systematic risk

Firm-particular risk

I only

I and II only

I, II, and III

I and III


48. According to Tobin"s separation residential or commercial property, portfolio choice deserve to be separated into 2 independent work consisting of __________ and

__________.

A.identifying all investor implemented constraints; identifying the set of securities that condevelop to the investor"s constraints and also sell the finest risk-rerotate trade-offsB.identifying the investor"s degree of risk aversion; selecting securities from industry groups that are regular with the investor"s danger profile

C.identifying the optimal riskies portfolio; building a finish portfolio from T-bills and the optimal riskies portfolio based upon the investor"s level of danger aversionD.picking which riskies assets an investor prefers according to the investor"s risk-aversion level; minimizing the CAL by lending at the risk-free rate


You are constructing a scatter plot of excess returns for stock A versus the market index. If the correlation coefficient in between stock A and also the index is -1, you will certainly discover that the points of the scatter diagram ___________ and also the line of ideal fit has actually a ______________.

all fall on the line of ideal fit; positive slope

all fall on the line of ideal fit; negative slope

are extensively scattered approximately the line; positive slope

are widely scattered about the line; negative slope


50. The term excess rerotate refers to ______________.

returns earned illegally by implies of insider trading

the difference between the price of rerevolve earned and the risk-totally free rate

the distinction in between the rate of rerevolve earned on a details security and the price of rerotate earned on various other securities of identical risk

the percentage of the rerevolve on a protection that represents tax liability and therefore cannot be reinvested


51. You are recalculating the risk of ACE stock in relation to the industry index, and also you discover that the ratio of the organized variance to the full variance has actually risen. You need to additionally discover that the ____________.

covariance in between ACE and the sector has fallen

correlation coeffective between ACE and the industry has actually fallen

correlation coeffective in between ACE and the market has risen

unsystematic hazard of ACE has actually risen


52. A stock has a correlation via the industry of .45. The standard deviation of the industry is 21%, and also the traditional deviation of the stock is 35%. What is the stock"s beta?

A. 1

B. .75

C. .60

D. .55


53. The worths of beta coefficients of securities are __________.

always positive

always negative

always in between positive 1 and also negative 1

normally positive yet are not limited in any certain way


54. A security"s beta coreliable will certainly be negative if ____________.

its retransforms are negatively associated through market-index returns

its retransforms are positively associated with market-index returns

its stock price has historically been incredibly stable

sector demand for the firm"s shares is extremely low


55. The sector worth weighted-average beta of firms had in the sector index will certainly always be _____________.

0

in between 0 and also 1

1

namong these options (There is no specific preeminence concerning the average beta of firms had in the market index.)


56. Diversification deserve to alleviate or get rid of __________ danger.

all

systematic

nonsystematic

D. just an insignificant


57. To construct a riskless portfolio utilizing 2 riskies stocks, one would must discover two stocks with a correlation coeffective of ________.

A. 1

B. .5

0

-1


58. Some diversification benefits can be accomplished by combining securities in a portfolio as lengthy as the correlation between the securities is

_____________.

1

much less than 1

between 0 and 1

less than or equal to 0


59. If an investor does not diversify his portfolio and also instead puts all of his money in one stock, the appropriate meacertain of security danger for that investor is the ________.

stock"s conventional deviation

variance of the market

stock"s beta

covariance through the market index


60. Which of the following provides the ideal instance of a systematic-threat event?

A strike by union workers hurts a firm"s quarterly earnings.

Mad Cow condition in Montana damages regional ranchers and buyers of beef.

The Federal Reserve boosts interest prices 50 basis points.

A senior executive at a firm embezzles $10 million and also escapes to South America.


61. Which of the adhering to statements is (are) true about time diversification?

I. The traditional deviation of the average annual rate of rerevolve over a number of years will be smaller sized than the 1-year traditional deviation.

II. For a longer time horizon, uncertainty compounds over a higher variety of years.

Time diversification does not alleviate threat.

I only

II only

II and III only

I, II, and III


62. You uncover that the annual Sharpe ratio for stock A returns is equal to 1.8. For a 3-year holding period, the Sharpe proportion would certainly equal _______.

1.8

2.48

3.12

5.49


*

The beta of this stock is ____.

A. .12

B. .35

1.32

4.05


*

This stock has better systematic danger than a stock through a beta of ___.

A. .50

1.5

2

3


*

The characteristic line for this stock is Rstock = ___ + ___ Rindustry.

A. .35; .12

4.05; 1.32

15.44; .97

D. 26; 1.36


*

_______________ % of the variance is explained by this regression.

12

35

4.05

80


*

The stock is ______ riskier than the typical stock.

32%

15.44%

12%

38%


68. Decreasing the variety of stocks in a portfolio from 50 to 10 would certainly likely ________________.

boost the organized hazard of the portfolio

rise the unmethodical risk of the portfolio

rise the rerevolve of the portfolio

decrease the variation in retransforms the investor faces in any kind of one year


69. If you desire to recognize the portfolio conventional deviation for a three-stock portfolio, you will certainly need to ______.

calculate two covariances and one trivariance

calculate just two covariances

calculate 3 covariances

average the variances of the individual stocks


70. Which of the complying with correlation coefficients will certainly develop the leastern diversification benefit?

-.6

-.3

0

.8


71. Which of the complying with correlation coefficients will develop the most diversification benefits?

-.6

-.9

0

.4


72. What is the most likely correlation coreliable between a stock-index shared money and the S&P 500?

-1

0

1

.5


73. Investing in 2 assets with a correlation coeffective of -.5 will minimize what type of risk?

A. market riskB. nondiversifiable riskC. methodical riskD. distinctive risk


74. Investing in 2 assets through a correlation coeffective of 1 will reduce which type of risk?

A. sector riskB. unique riskC. unorganized riskD. none of these choices (With a correlation of 1, no risk will be reduced.)


75. A portfolio of stocks fluctuates as soon as the Treasury yields adjust. Due to the fact that this hazard cannot be got rid of with diversification, it is called

__________.

firm-specific risk

systematic risk

distinctive risk

none of the options


76. As you lengthen the moment horizon of your investment duration and decide to invest for multiple years, you will uncover that:

I. The average threat per year might be smaller over much longer investment horizons.

II. The overall danger of your investment will certainly compound over time.

Your overall danger on the investment will fall.

I only

I and also II only

III only

I, II, and also III


. You are considering including a brand-new security to your portfolio. To decide whether you must add the protection, you need to know the security"s:

I. Expected return

II. Standard deviation

Correlation via your portfolio

I only

I and also II only

I and III only

I, II, and III


Which of the adhering to is a correct expression concerning the formula for the traditional deviation of returns of a two-asset portfolio where the correlation coreliable is positive?

A. σ2rp B. σ2rp = (W12σ12 + W22σ22)C. σ2rp = (W12σ12 - W22σ22)D. σ2rp > (W12σ12 + W22σ22)


79. What is the conventional deviation of a portfolio of two stocks offered the following data: Stock A has a conventional deviation of 18%. Stock B has a traditional deviation of 14%. The portfolio consists of 40% of stock A, and the correlation coreliable between the 2 stocks is -.23.

9.7%

12.2%

14%

15.6%


80. What is the traditional deviation of a portfolio of 2 stocks offered the following data: Stock A has a standard deviation of 30%. Stock B has actually a traditional deviation of 18%. The portfolio has 60% of stock A, and the correlation coreliable between the 2 stocks is -1.

0%

10.8%

18%

24%


81. The intended return of a portfolio is 8.9%, and also the risk-free rate is 3.5%. If the portfolio typical deviation is 12%, what is the reward-to-varicapacity ratio of the portfolio?

A. 0

B. .45

C. .74

D. 1.35


82. A project has actually a 60% opportunity of doubling your investment in 1 year and also a 40% chance of losing fifty percent your money. What is the conventional deviation of this investment?

25%

50%

62%

73%


83. A job has a 50% opportunity of doubling your investment in 1 year and a 50% possibility of shedding fifty percent your money. What is the supposed rerotate on this investment project?

0%

25%

50%

75%


*

84. The figures below display plots of monthly excess retransforms for 2 stocks plotted against excess returns for a sector index.

Which stock is likely to further mitigate threat for an investor currently holding her portfolio in a well-diversified portfolio of widespread stock?

Stock A

Stock B

There is no distinction in between A or B.

The answer cannot be figured out from the indevelopment given.


*

85. The numbers listed below show pmany monthly excess retransforms for 2 stocks plotted versus excess returns for a sector index.

Which stock is riskier to a nondiversified investor who puts all his money in only one of these stocks?

Stock A is riskier.

Stock B is riskier.

Both stocks are equally risky.

The answer cannot be established from the indevelopment given.


86. In the article “Danger: High Levels of Company type of Stock,” what is the maximum amount of your employer’s stock that the writer recommends you host in your retirement account?

A. 5% B. 10%C. 50%D. 90%


87. The reliable frontier represents a set of portfolios that

A. maximize expected return for a provided level of risk.B. minimize expected rerotate for a given level of threat.C. maximize threat for a offered level of rerevolve.D. Namong the options.


88. The portfolio with the lowest traditional deviation for any risk premium is called the_______.

See more: Which Of The Following Phrases Best Describes The Meaning Of Suburban Decay? ?

A. CAL portfolioB. effective frontier portfolioC. global minimum variance portfolioD. optimal risky portfolio


89. Lear Corp. has an supposed excessrerotate of 8% next year. Assume Lear’s beta is 1.43. If the economy booms and the stock industry beats expectations by 5%, what was Lear’s actual excess return?

A. 7.15% B. 13%C. 15.15%D. 18.59 %


90. The plot of a security’s excess rerevolve family member to the market’s excess return is dubbed the _______.

A. reliable frontierB.protection characteristic lineC. capital allocation lineD. funding industry line