1．The single-factor market model assumes there are how many sources of risk in asset returns? A) One. B) Two. C) Three. D) Four. The correct answer was B) The market model assumes that there are two sources of risk in asset returns, unanticipated macroeconomic events and firm-specific events. 2．Michael Carr and Karen Bocock are analysts for the Portfolio Optimization Group. Carr and Bocock are discussing the firm’s mean variance optimization model for equity holdings and the pros and cons of using market model estimates or historical estimates as inputs to the model. Carr states, “One of the main concerns I have about the model is that whether we are using market model estimates or historical estimates, we are implicitly assuming that the historical relationship between the stock and the market is indicative of the future.” Bocock replies, “One of the main advantages to using the market model estimates is the fact that there are fewer parameters to estimate.” With regard to their statements about methods for computing the inputs for a mean-optimization model: A) Carr is incorrect; Bocock is incorrect. B) Carr is correct; Bocock is correct. C) Carr is correct; Bocock is incorrect. D) Carr is incorrect; Bocock is correct. The correct answer was B) Carr’s statement is correct. Using historical estimates and market model estimates both involve the implicit assumption that the historical relationship between a stock and the market is indicative of the future relationship. The historical estimate method uses direct historical means, variances, and correlations as inputs to the model. The market model method regresses historical returns against returns for the market and assumes that returns for each asset are correlated with returns to the market. Since both methods use some form of historical data, both assume that history is indicative of the future. Bocock is also correct. The historical estimate method requires a large number of estimates, especially for computing the covariances between every stock in a portfolio. The market model estimate method simplifies the process significantly (resulting in fewer parameters) since all stock returns are assumed to be correlated with the market. 3．Carl Dursham recently earned the CFA designation and has just been hired by Quad Cities Consultants, which is a money management firm for private, high net worth clients. Quad Cities Consultants has just assigned Dursham his first client. The client’s name is Sally Litner. Litner has just received a multi-million dollar inheritance consisting of certificates of deposit that are about to mature. She is only 30 years old and recognizes that she should probably invest in assets like stocks that have a higher risk and return. Litner is a high school mathematics teacher and has an aptitude for formulas and equations, but she has never applied it to investments. Litner feels that Dursham will probably do a good job for her, but she wants him to explain to her how he will approach creating her portfolio. When Dursham and Litner first meet, Litner says that she has heard of a stock that has done very well and is expected to continue to experience dramatic increases in the future. The name of the stock is IntMarket Corporation, which is a company that facilitates commerce on the Internet, and its recent return and standard deviation are 24% and 60% respectively. She asks Dursham if he thinks she should invest 100% of her portfolio in IntMarket Corporation. Dursham looks up the beta of IntMarket and finds that it is 1.6. He says that IntMarket Corporation might be a good first position, and he says that a good second position might be Granite Bank. The return and standard deviation of the bank stock is 12% and 30% respectively. Its beta is 0.9. The covariance of the bank stock with IntMarket Corporation is 576. Dursham explains how diversification can lower risk and computes the statistics for portfolios that have various weights in IntMarket and Granite Bank. Litner is intrigued by Dursham’s demonstration concerning the effects of diversification. She asks about the effect of adding a third asset to the portfolio. To help illustrate the benefits of diversification further, Dursham chooses Capital Commodities Mutual fund, which invests in assets related to the production of raw materials and other commodities. The recent return and standard deviation of Capital Commodities has been 8% and 18% respectfully. The correlation of Capital Commodities with the other two stocks is effectively zero. Dursham computes the return and standard deviation of a portfolio consisting of 50% IntMarket, 30% Granite Bank, and 20% Capital Commodities. Dursham takes time to explain the principle and assumptions behind mean-variance analysis and why it is important. He says the four underlying principals are i) investors are risk averse, ii) necessary statistics of returns can be calculated, iii) the returns have a normal distribution, and iv) the tax rate is fixed at some positive rate like 28%. During the discussion, Litner says she thinks the three stocks IntMarket Corporation, Granite Bank, and Capital Commodities may be all she needs in her portfolio. She asks Dursham to choose the weights for those three stocks that will minimize the variance and let that be her portfolio. If they desire a higher return, she adds using terms she has just learned, they can just leverage up that portfolio. If the recent return of the market was 14%, and the risk-free rate is 3%, using the market model what was the alpha of IntMarket Corporation? A) +1.4%. B) –1.4%. C) +4.4%. D) +1.6%. The correct answer was D) When using the market model, alpha is the difference between the realized return and that predicted by the product of the beta and the market return. The risk-free rate is not a part of the computation. The recent return of IntMarket was 24%. The predicted return based upon a beta equal to 1.6 and a market return of 14% is the product of these values: 22.4%. Thus the alpha is 24% minus 22.4%, or 1.6%. 4．Of Dursham’s list of the assumptions underlying mean-variance analysis, which of the following is the least likely to be one of the generally accepted assumptions? A) The returns have a normal distribution. B) The tax rate is fixed at some positive rate like 28%. C) Necessary statistics of returns can be calculated. D) Investors are risk averse. The correct answer was B) The assumption should be that there are no taxes and that there are no transactions costs. 5．A portfolio invested 50 percent in IntMarket and 50 percent in Granite Bank would have an expected return: A) lower than that of Granite Bank and a higher standard deviation than that of Granite Bank. B) greater than that of Granite Bank and a lower standard deviation than that of Granite Bank. C) greater than that of Granite Bank and a higher standard deviation than that of Granite Bank. D) lower than that of Granite Bank and a lower standard deviation than that of Granite Bank. The correct answer was C) The average will obviously be higher than that of Granite Bank. The average is 18% = 0.5*24% + 0.5*12%. The variance of the 50/50 portfolio is 1413 = 0.5*0.5*60*60 + 0.5*0.5*30*30 + 2*0.5*0.5*576; the standard deviation is about 37.6%, which is greater than the 30% standard deviation of Granite Bank. 6．The portfolio that Dursham recommends using the two stocks and the mutual fund would have a standard deviation that is closest in value to: A) 36.0%. B) 36.7%. C) 39.6%. D) 34.2%. The correct answer was D) Since the return of Capital Commodities is uncorrelated with the returns of the two stocks, the variance of the portfolio is 1166.8 = 0.5*0.5*60*60+0.3*0.3*30*30+0.2*0.2*18*18+2*0.5*0.3*576 The standard deviation is the square root of this: 34.2% 7．When compared to all other possible portfolios, the portfolio that has the smallest variance, which Litner requests, would have a Sharpe ratio that: A) could not be the highest of all possible portfolios. B) is undefined given the inputs provided. C) is the highest of all possible portfolios. D) may or may not be the highest of all possible portfolios; there is no general rule. The correct answer was A) Minimizing the variance does not produce the portfolio with the highest Sharpe ratio. A point along the efficient frontier above the minimum variance portfolio will have both a higher return and standard deviation, but it will have a higher Sharpe ratio. 8．The portfolio that Litner requests, the one that has the smallest variance of all possible portfolios, would best be described as the: A) market portfolio. B) efficient variance portfolio. C) global minimum variance portfolio. D) price of risk. The correct answer was C) This is the definition of the global minimum variance portfolio. 9．Which of the following is NOT an assumption necessary to derive the single-factor market model? The: A) expected value of firm-specific surprises is zero. B) firm-specific surprises are uncorrelated with the market portfolio return. C) firm-specific surprises are uncorrelated across assets. D) market portfolio is the tangency portfolio. The correct answer was D) The result that the market portfolio is the tangency portfolio is a prediction of the CAPM model, not the market model. The market model assumes that there are two sources of risk, unanticipated macroeconomic events and firm-specific events. We use the return on the market portfolio as a proxy for the macroeconomic factor and assume all stocks have varying degrees of sensitivity to this macro factor. In addition, each stock’s returns are uniquely affected by firm-specific events uncorrelated across stocks and with the macro events. The other three choices are the assumptions necessary to derive the single-factor market model. | 
发表于 2008-4-14 17:49
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