In their responses to McDonald’s proposition that the CAL of the MT portfolio should be steeper than that of the S& 500: A) Kreager is correct but Ito is incorrect. B) neither Kreager nor Ito is correct. C) Kreager is not correct but Ito is incorrect. D) both Kreager and Ito are correct. The correct answer was B) Kreager asserts that the CAL will be steeper if the average returns on the non-stock indexes are greater than the S& 500. The fact is that the slope, which is also called the Sharpe Ratio, also depends upon the standard deviation of the MT portfolio. Without further information, it is impossible to know if Kreager is correct, but his statement is clearly not correct taken in isolation. Ito asserts that the CAL will be steeper if the standard deviations of the non-stock indexes are less than the S& 500. The fact is that the slope, which is also called the Sharpe Ratio, also depends upon the return of the MT portfolio. Without further information, it is impossible to know if Ito is correct, but her statement is clearly not correct taken in isolation. 2.In response to Kreager’s assertion that the goal is to try to achieve the minimum variance portfolio on the efficient frontier, McDonald should: A) not agree under any circumstances. B) agree. C) agree only if it can be achieved with long positions in assets. D) not agree if it requires positions in foreign assets. The correct answer was A) Any portfolio on the efficient frontier with a return greater than the minimum variance portfolio can be combined with the risk-free asset to create a portfolio that has a superior risk-return tradeoff when compared with the minimum variance portfolio. Thus, achieving the minimum variance portfolio would not be a worthwhile goal. 3.With the given information, Ito finds that the CAL of the S& 500 is equal to the CAL of the MT portfolio if the return of the MT portfolio equals: A) 8.6 percent. B) 10.6 percent. C) 16.0 percent. D) 11.4 percent. The correct answer was B) The CAL of the S& 500 is 0.35 = (12-5) / 20. To find the return that gives this slope for the CAL, Ito would solve for R in the expression 0.35 = (R-5) / 16. This gives 5.6 = R – 5, R = 10.6. 4.What set of portfolios are being determined by the following procedure? For each level of expected return the single portfolio with the smallest variance is determined, subject to the constraint that the portfolio weights sum to one. Assume there is no risk-free asset. A) Efficient frontier. B) Minimum-variance frontier. C) Capital allocation line. D) Capital market line. The correct answer was B) The procedure determines the minimum-variance frontier, the expected return-standard deviation of the set of portfolios that have the minimum variance for every given level of expected return. The efficient frontier consists of (efficient) portfolios that have the maximum expected return for any given standard deviation; it’s the top half of the minimum-variance frontier. The capital allocation line results from the addition of a risk-free asset to the opportunity set. It runs through the risk-free asset and is tangent to the efficient frontier. The capital market line is the capital allocation line with the market portfolio as the tangency portfolio. 5.The efficient frontier is useful for portfolio management because: A) it significantly reduces the number of portfolios a manager must consider. B) it expands the opportunity set of portfolio choices when short selling is prohibited. C) portfolios on the efficient frontier are optimal: the correlation between each efficient portfolio, and the market portfolio is negative. D) portfolios on the efficient frontier are useful as factor portfolios. The correct answer was A) If we are selecting portfolios from a large number of stocks, say the S& 500, rather than just two stocks, the number of possible combinations is extremely large. We can restrict our search for possible portfolio combinations by focusing on those portfolios on the efficient frontier. We know they dominate all the other possible choices because they offer higher return for the same level of risk. 6.When solving for the minimum-variance frontier for many assets, the constraint is: A) weighted-average covariances must sum to zero. B) portfolio weights must sum to one. C) weighted-average variances must sum to one. D) weighted-average expected asset returns must sum to expected portfolio return. The correct answer was B) This is the second step in determining the minimum-variance frontier. For every expected return between the smallest and largest expected return, determine the single portfolio with the smallest variance. We assume that the portfolio weights add up to one (this is the constraint on the portfolio weights). This step requires expected returns, variances, and covariances to calculate expected return and variance of the portfolios. 7.The portfolio on the minimum-variance frontier that has the smallest standard deviation is the: A) optimal efficient portfolio. B) global minimum-variance portfolio. C) market portfolio. D) globally-diversified portfolio. The correct answer was B) The global minimum-variance portfolio is the portfolio on the minimum-variance frontier that has the smallest standard deviation (or variance). It is the portfolio at the tip of the bullet. The market portfolio, in which each asset is held in proportion to its market value, cannot have the smallest standard deviation of the portfolios on the minimum variance frontier. 8.The efficient frontier consists of portfolios that have: A) the minimum standard deviation for any given level of expected return. B) the maximum expected return for any given standard deviation. C) standard deviations less than that of the market portfolio. D) capital allocation lines with slopes greater than 1.0. The correct answer was B) The efficient frontier consists of (efficient) portfolios that have the maximum expected return for any given standard deviation. The efficient frontier starts at the global minimum-variance portfolio and continues above it on the minimum variance frontier. The minimum-variance frontier is the expected return-standard deviation combinations of the set of portfolios that have the minimum variance for every given level of expected return. Efficient portfolios can have standard deviations greater than that of the market portfolio. They can also have capital allocation line (CAL) slopes less than 1.0. These slopes, however, will all be less than that of the CAL of the market portfolio (the capital market line). 9.An analyst has gathered the following data: Portfolio | Weight S&(%) | Weight EAFE(%) | PORT σ (%) | E(Rp)(%) | A | 100 | 0 | 10 | 10 | B | 70 | 30 | 6 |
| C | 30 | 70 | 11 |
| D | 0 | 100 | 15 | 20 |
Which portfolio represents the minimum variance portfolio? A) Portfolio A. B) Portfolio C. C) Portfolio D. D) Portfolio B. The correct answer was D) Minimum variance portfolio among the choices presented is portfolio B (70% S&, 30% EAFE). 10.Is there a benefit to international diversification for a U.S. investor? A) Yes, since a 30% weighting in the EAFE index results in an increased return and decreased standard deviation than 100% investment in the S& index. B) Yes, since a 70% weighting in the EAFE index results in a much higher expected return with a minimal increase in portfolio standard deviation than 100% investment in the S& index. C) No, since a 100% weighting in international stocks results in a significant increase in portfolio standard deviation. D) Yes, since a 100% weighting in international stocks results in a doubling of the expected return with only a 50% increase in risk. The correct answer was A) To answer this question, it is necessary to complete the table. ERportB = (.70)(10) + (.30)(20) = 13 ERportC = (.30)(10) + (.70)(20) = 17 Portfolio | Weight S&P(%) | Weight EAFE(%) | PORTσ(%) | E(Rp)(%) | A | 100 | 0 | 10 | 10 | B | 70 | 30 | 6 | 13 | C | 30 | 70 | 11 | 17 | D | 0 | 100 | 15 | 20 |
For portfolio B, the addition of EAFE is return enhancing and risk reducing. If the U.S. investor chooses portfolio B, E(r ) increases to 13 percent and portfolio risk decreases to 6 percent. For portfolio C, returns are increasing but so is the risk level. If the U.S. investor chooses portfolio C, E(r ) increases to 17 percent but the portfolio risk also increases to 11 percent. 11.Assume the annual Treasury bill (t-bill) yields 4 percent. Which portfolio is the most desirable (i.e., highest Sharpe ratio)? A) Portfolio A. B) Portfolio C. C) Portfolio D. D) Portfolio B. The correct answer was D) Sharpe (Portfolio A) = (10 – 4)/10 = 0.60 Sharpe (Portfolio B) = (13 – 4)/6 = 1.5 Sharpe (Portfolio C) = (17 – 4)/11 = 1.18 Sharpe (Portfolio D) = (15 – 4)/20 = 0.55 12.The efficient frontier enables managers to reduce that number of possible portfolios considered because the portfolios on the efficient frontier: A) have lower risk levels for every level of expected return than all other possible portfolios. B) can be purchased at lower transactions costs than all other possible portfolios. C) have higher risk levels for every level of expected return than all other possible portfolios. D) have higher expected returns for every level of risk than all other possible portfolios. The correct answer was D) If we are selecting portfolios from a large number of stocks, say the S&P 500, rather than just two stocks, the number of possible combinations is extremely large. We can restrict our search for possible portfolio combinations by focusing on those portfolios on the efficient frontier. We know they dominate all the other possible choices because they offer higher return for the same level of risk. The minimum-variance frontier consists of portfolios that have lower risk levels for every level of expected return than all other possible portfolios. Transactions costs for efficient portfolios will not necessarily be less than for other portfolios. 13. Which of the portfolios represented in the table below are NOT efficient? Portfolio | A | B | C | D | E | F | G | H | (Rp) | 10% | 12.5% | 15% | 16% | 17% | 18% | 18% | 20% | sp
| 23% | 21% | 25% | 29% | 29% | 32% | 35% | 45% |
A) A, D, and G. B) B, E, and F. C) B, D, and F. D) All are efficient. The correct answer was A) Relative to any other portfolio, an inefficient portfolio has greater risk at the same return (portfolio G), less return at the same level of risk (portfolio D), or less return and more risk (portfolio A). | 
发表于 2008-4-14 17:07
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