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发表于 2010-4-21 14:02 | 只看该作者

Reading 50: An Introduction to Portfolio Management LOS b习题

border, investor, following, div
LOS b: List the assumptions about investor behavior underlying the Markowitz model.

Which of the following is NOT an assumption of the Markowitz Portfolio Theory? Investors:

A)
 view the range of the distribution of returns as capturing risk.
B)
 base all their decisions on expected return and risk.
C)
 view the mean of the distribution of returns as capturing the expected return.

Investors view the variance (or standard deviation) of the distribution as capturing the risk of the security, not the range of returns.

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honeycfa

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2#
发表于 2010-4-21 14:02 | 只看该作者

Which of the following statements regarding the Markowitz model of portfolio theory is FALSE? The model assumes investors:

A)
 estimate a portfolio's risk on the basis of the variability of expected returns.
B)
 evaluate investment opportunities as a probability distribution of expected returns over some time period.
C)
 view the mean of the distribution of potential outcomes as the expected risk of an investment.


The following are assumptions associated with Markowitz Portfolio Theory:

  • Risk is variability. Investors measure risk as the variance (standard deviation) of expected returns.
  • Returns distribution. Investors look at each investment opportunity as a probability distribution of expected returns over a given investment horizon.
  • Utility maximization. Investors maximize their expected utility over a given investment horizon, and their indifference curves exhibit diminishing marginal utility of wealth (i.e., they are convex).
  • Risk/return. Investors make all investment decisions by considering only the risk and return of an investment opportunity. This means that their utility (indifference) curves are a function of the expected return (mean) and the variance of the returns distribution they envision for each investment.
  • Risk aversion. Given two investments with equal expected returns, investors prefer the one with the lower risk. Likewise, given two investments with equal risk, investors prefer the one with the greater expected return.

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honeycfa

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3#
发表于 2010-4-21 14:03 | 只看该作者

An analyst is currently considering a portfolio consisting of two stocks. The first stock, Remba Co., has an expected return of 12% and a standard deviation of 16%. The second stock, Labs, Inc., has an expected return of 18% and a standard deviation of 25%. The correlation of returns between the two securities is 0.25.

If the analyst forms a portfolio with 30% in Remba and 70% in Labs, what is the portfolio's expected return?

A)
 15.0%.
B)
 16.2%.
C)
 17.3%.


ERportfolio = Σ(ERstock)(W% of funds invested in each of the stocks)

ER = w1ER1 + w2ER2, where ER = Expected Return and w = % invested in each stock.

ER = (0.3 × 12) + (0.70 × 18) = 3.6 + 12.6 = 16.2%

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