标题: Portfolio Management【Reading 44】Sample [打印本页]
作者: mouse123 时间: 2012-3-29 14:09 标题: [2012 L1] Portfolio Management【Session 12 - Reading 44】Sample
An asset manager’s portfolio had the following annual rates of return:| Year | Return |
| 20X7 | +6% |
| 20X8 | -37% |
| 20X9 | +27% |
The manager states that the return for the period is −5.34%. The manager has reported the:A)
| geometric mean return. |
|
B)
| arithmetic mean return |
|
C)
| holding period return. |
|
Geometric Mean Return = 
= −5.34%
Holding period return = (1 + 0.06)(1 − 0.37)(1 + 0.27) − 1 = −15.2%
Arithmetic mean return = (6% − 37% + 27%) / 3 = −1.33%.
作者: mouse123 时间: 2012-3-29 14:09
Over the long term, the annual returns and standard deviations of returns for major asset classes have shown: A)
| a positive relationship. |
|
B)
| a negative relationship. |
|
C)
| no clear relationship. |
|
In most markets and for most asset classes, higher average returns have historically been associated with higher risk (standard deviation of returns).
作者: mouse123 时间: 2012-3-29 14:09
A bond analyst is looking at historical returns for two bonds, Bond 1 and Bond 2. Bond 2’s returns are much more volatile than Bond 1. The variance of returns for Bond 1 is 0.012 and the variance of returns of Bond 2 is 0.308. The correlation between the returns of the two bonds is 0.79, and the covariance is 0.048. If the variance of Bond 1 increases to 0.026 while the variance of Bond B decreases to 0.188 and the covariance remains the same, the correlation between the two bonds will:
P1,2 = 0.048/(0.0260.5 × 0.1880.5) = 0.69 which is lower than the original 0.79.
作者: mouse123 时间: 2012-3-29 14:10
If the standard deviation of returns for stock A is 0.40 and for stock B is 0.30 and the covariance between the returns of the two stocks is 0.007 what is the correlation between stocks A and B?
CovA,B = (rA,B)(SDA)(SDB), where r = correlation coefficient and SDx = standard deviation of stock x
Then, (rA,B) = CovA,B / (SDA × SDB) = 0.007 / (0.400 × 0.300) = 0.0583
作者: mouse123 时间: 2012-3-29 14:10
If the standard deviation of asset A is 12.2%, the standard deviation of asset B is 8.9%, and the correlation coefficient is 0.20, what is the covariance between A and B?
The formula is: (correlation)(standard deviation of A)(standard deviation of B) = (0.20)(0.122)(0.089) = 0.0022.
作者: mouse123 时间: 2012-3-29 14:10
Stock A has a standard deviation of 10.00. Stock B also has a standard deviation of 10.00. If the correlation coefficient between these stocks is - 1.00, what is the covariance between these two stocks?
Covariance = correlation coefficient × standard deviationStock 1 × standard deviationStock 2 = (- 1.00)(10.00)(10.00) = - 100.00.
作者: mouse123 时间: 2012-3-29 14:10
The correlation coefficient between stocks A and B is 0.75. The standard deviation of stock A’s returns is 16% and the standard deviation of stock B’s returns is 22%. What is the covariance between stock A and B?
cov1,2 = 0.75 × 0.16 × 0.22 = 0.0264 = covariance between A and B.
作者: mouse123 时间: 2012-3-29 14:11
If two stocks have positive covariance, which of the following statements is CORRECT? A)
| The rates of return tend to move in the same direction relative to their individual means. |
|
B)
| The two stocks must be in the same industry. |
|
C)
| If one stock doubles in price, the other will also double in price. |
|
This is a correct description of positive covariance.
If one stock doubles in price, the other will also double in price is true if the correlation coefficient = 1. The two stocks need not be in the same industry.
作者: mouse123 时间: 2012-3-29 14:11
A measure of how well the returns of two risky assets move together is the:
This is a correct description of covariance. A positive covariance means the returns of the two securities move in the same direction.
A negative covariance means that the returns of two securities move in opposite directions.
A zero covariance means there is no relationship between the behaviors of two stocks. The magnitude of the covariance depends on the magnitude of the individual stock’s standard deviations and the relationship between their co-movements.
The covariance is an absolute measure of movement and is measured in return units squared.
作者: mouse123 时间: 2012-3-29 14:12
The covariance of the market's returns with the stock's returns is 0.008. The standard deviation of the market's returns is 0.1 and the standard deviation of the stock's returns is 0.2. What is the correlation coefficient between the stock and market returns?
CovA,B = (rA,B)(SDA)(SDB), where r = correlation coefficient and SDx = standard deviation of stock x
Then, (rA,B) = CovA,B / (SDA × SDB) = 0.008 / (0.100 × 0.200) = 0.40
Remember: The correlation coefficient must be between -1 and 1.
作者: mouse123 时间: 2012-3-29 14:12
The standard deviation of the rates of return is 0.25 for Stock J and 0.30 for Stock K. The covariance between the returns of J and K is 0.025. The correlation of the rates of return between J and K is:
CovJ,K = (rJ,K)(SDJ)(SDK), where r = correlation coefficient and SDx = standard deviation of stock x
Then, (rJ,K) = CovJ,K / (SDJ × SDK) = 0.025 / (0.25 × 0.30) = 0.333
作者: mouse123 时间: 2012-3-29 14:12
Which of the following statements regarding the covariance of rates of return is least accurate? A)
| It is a measure of the degree to which two variables move together over time. |
|
B)
| It is not a very useful measure of the strength of the relationship, there is absent information about the volatility of the two variables. |
|
C)
| If the covariance is negative, the rates of return on two investments will always move in different directions relative to their means. |
|
Negative covariance means rates of return will tend to move in opposite directions on average. For the returns to always move in opposite directions, they would have to be perfectly negatively correlated. Negative covariance by itself does not imply anything about the strength of the negative correlation.
作者: mouse123 时间: 2012-3-29 14:13
If the standard deviation of stock A is 10.6%, the standard deviation of stock B is 14.6%, and the covariance between the two is 0.015476, what is the correlation coefficient?
The formula is: (Covariance of A and B) / [(Standard deviation of A)(Standard Deviation of B)] = (Correlation Coefficient of A and B) = (0.015476) / [(0.106)(0.146)] = 1.
作者: mouse123 时间: 2012-3-29 14:13
If the standard deviation of stock A is 13.2 percent, the standard deviation of stock B is 17.6 percent, and the covariance between the two is 0, what is the correlation coefficient?
Since covariance is zero, the correlation coefficient must be zero.
作者: mouse123 时间: 2012-3-29 14:13
If the standard deviation of stock A is 7.2%, the standard deviation of stock B is 5.4%, and the covariance between the two is -0.0031, what is the correlation coefficient?
The formula is: (Covariance of A and B)/[(Standard deviation of A)(Standard Deviation of B)] = (Correlation Coefficient of A and B) = (-0.0031)/[(0.072)(0.054)] = -0.797.
作者: mouse123 时间: 2012-3-29 14:14
If the standard deviation of returns for stock A is 0.60 and for stock B is 0.40 and the covariance between the returns of the two stocks is 0.009 what is the correlation between stocks A and B?
CovA,B = (rA,B)(SDA)(SDB), where r = correlation coefficient and SDx = standard deviation of stock x
Then, (rA,B) = CovA,B / (SDA × SDB) = 0.009 / (0.600 × 0.400) = 0.0375
作者: mouse123 时间: 2012-3-29 14:14
Stock A has a standard deviation of 10%. Stock B has a standard deviation of 15%. The covariance between A and B is 0.0105. The correlation between A and B is:
CovA,B = (rA,B)(SDA)(SDB), where r = correlation coefficient and SDx = standard deviation of stock x
Then, (rA,B) = CovA,B / (SDA × SDB) = 0.0105 / (0.10 × 0.15) = 0.700
作者: mouse123 时间: 2012-3-29 14:15
Risk aversion means that if two assets have identical expected returns, an individual will choose the asset with the: A)
| higher standard deviation. |
|
B)
| shorter payback period. |
|
|
Investors are risk averse.
Given a choice between assets with equal rates of expected return, the investor will always select the asset with the lowest level of risk.
This means that there is a positive relationship between expected returns (ER) and expected risk (Es) and the risk return line (capital market line [CML] and security market line [SML]) is upward sloping.
Standard deviation is a way to quantify risk. The payback period is used to evaluate capital projects, not investment returns.
作者: mouse123 时间: 2012-3-29 14:15
Which of the following statements about risk aversion is CORRECT? A)
| Given a choice between two assets with equal rates of return, the investor will always select the asset with the lowest level of risk. |
|
B)
| Risk averse investors will not take on risk. |
|
C)
| Risk aversion implies that the risk-return line, the CML, and the SML are downward sloping curves. |
|
Risk aversion implies that an investor will not assume risk unless compensated.
作者: mouse123 时间: 2012-3-29 14:16
A stock has an expected return of 4% with a standard deviation of returns of 6%. A bond has an expected return of 4% with a standard deviation of 7%. An investor who prefers to invest in the stock rather than the bond is best described as:
Given two investments with the same expected return, a risk averse investor will prefer the investment with less risk. A risk neutral investor will be indifferent between the two investments. A risk seeking investor will prefer the investment with more risk.
作者: mouse123 时间: 2012-3-29 14:16
Betsy Minor is considering the diversification benefits of a two stock portfolio. The expected return of stock A is 14 percent with a standard deviation of 18 percent and the expected return of stock B is 18 percent with a standard deviation of 24 percent. Minor intends to invest 40 percent of her money in stock A, and 60 percent in stock B. The correlation coefficient between the two stocks is 0.6. What is the variance and standard deviation of the two stock portfolio? A)
| Variance = 0.02206; Standard Deviation = 14.85%. |
|
B)
| Variance = 0.04666; Standard Deviation = 21.60%. |
|
C)
| Variance = 0.03836; Standard Deviation = 19.59%. |
|
(0.40)2(0.18)2 + (0.60)2(0.24)2 + 2(0.4)(0.6)(0.18)(0.24)(0.6) = 0.03836.
0.038360.5 = 0.1959 or 19.59%.
作者: mouse123 时间: 2012-3-29 14:16
Which of the following measures is NOT considered when calculating the risk (variance) of a two-asset portfolio? A)
| The beta of each asset. |
|
B)
| Each asset’s standard deviation. |
|
C)
| Each asset weight in the portfolio. |
|
The formula for calculating the variance of a two-asset portfolio is:
σp2 = WA2σA2 + WB2σB2 + 2WAWBCov(a,b)
作者: mouse123 时间: 2012-3-29 14:17
Assets A (with a variance of 0.25) and B (with a variance of 0.40) are perfectly positively correlated. If an investor creates a portfolio using only these two assets with 40% invested in A, the portfolio standard deviation is closest to:
The portfolio standard deviation = [(0.4)2(0.25) + (0.6)2(0.4) + 2(0.4)(0.6)1(0.25)0.5(0.4)0.5]0.5 = 0.5795
作者: mouse123 时间: 2012-3-29 14:17
An investor has a two-stock portfolio (Stocks A and B) with the following characteristics:- σA = 55%
- σB = 85%
- CovarianceA,B = 0.09
- WA = 70%
- WB = 30%
The variance of the portfolio is closest to:
The formula for the variance of a 2-stock portfolio is:
s2 = [WA2σA2 + WB2σB2 + 2WAWBσAσBrA,B]
Since σAσBrA,B = CovA,B, then
s2 = [(0.72 × 0.552) + (0.32 × 0.852) + (2 × 0.7 × 0.3 × 0.09)] = [0.1482 + 0.0650 + 0.0378] = 0.2511.
作者: mouse123 时间: 2012-3-29 14:18
What is the variance of a two-stock portfolio if 15% is invested in stock A (variance of 0.0071) and 85% in stock B (variance of 0.0008) and the correlation coefficient between the stocks is –0.04?
The variance of the portfolio is found by:
[W12 σ12 + W22 σ22 + 2W1W2σ1σ2r1,2], or [(0.15)2(0.0071) + (0.85)2(0.0008) + (2)(0.15)(0.85)(0.0843)(0.0283)(–0.04)] = 0.0007.
作者: mouse123 时间: 2012-3-29 14:18
An investor calculates the following statistics on her two-stock (A and B) portfolio. - σA = 20%
- σB = 15%
- rA,B = 0.32
- WA = 70%
- WB = 30%
The portfolio's standard deviation is closest to:
The formula for the standard deviation of a 2-stock portfolio is:
s = [WA2sA2 + WB2sB2 + 2WAWBsAsBrA,B]1/2
s = [(0.72 × 0.22) + (0.32 × 0.152) +( 2 × 0.7 × 0.3 × 0.2 × 0.15 × 0.32)]1/2 = [0.0196 + 0.002025 + 0.004032]1/2 = 0.02565701/2 = 0.1602, or approximately 16.0%.
作者: mouse123 时间: 2012-3-29 14:18
Two assets are perfectly positively correlated. If 30% of an investor's funds were put in the asset with a standard deviation of 0.3 and 70% were invested in an asset with a standard deviation of 0.4, what is the standard deviation of the portfolio?
σ portfolio = [W12σ12 + W22σ22 + 2W1W2σ1σ2r1,2]1/2 given r1,2 = +1
σ = [W12σ12 + W22σ22 + 2W1W2σ1σ2]1/2 = (W1σ1 + W2σ2)2]1/2
σ = (W1σ1 + W2σ2) = (0.3)(0.3) + (0.7)(0.4) = 0.09 + 0.28 = 0.37
作者: mouse123 时间: 2012-3-29 14:19
Which one of the following statements about correlation is NOT correct? A)
| The covariance is equal to the correlation coefficient times the standard deviation of one stock times the standard deviation of the other stock. |
|
B)
| Positive covariance means that asset returns move together. |
|
C)
| If two assets have perfect negative correlation, it is impossible to reduce the portfolio's overall variance. |
|
This statement should read, "If two assets have perfect negative correlation, it is possible to reduce the portfolio's overall variance to zero."
作者: mouse123 时间: 2012-3-29 14:19
A portfolio currently holds Randy Co. and the portfolio manager is thinking of adding either XYZ Co. or Branton Co. to the portfolio. All three stocks offer the same expected return and total risk. The covariance of returns between Randy Co. and XYZ is +0.5 and the covariance between Randy Co. and Branton Co. is -0.5. The portfolio's risk would decrease:A)
| most if she put half your money in XYZ Co. and half in Branton Co. |
|
B)
| more if she bought Branton Co. |
|
C)
| more if she bought XYZ Co. |
|
In portfolio composition questions, return and standard deviation are the key variables. Here you are told that both returns and standard deviations are equal. Thus, you just want to pick the companies with the lowest covariance, because that would mean you picked the ones with the lowest correlation coefficient.
σportfolio = [W12 σ12 + W22 σ22 + 2W1 W2 σ1 σ2 r1,2]½ where σRandy = ΥBranton = σXYZ so you want to pick the lowest covariance which is between Randy and Branton.
作者: mouse123 时间: 2012-3-29 14:20
A portfolio manager adds a new stock that has the same standard deviation of returns as the existing portfolio but has a correlation coefficient with the existing portfolio that is less than +1. Adding this stock will have what effect on the standard deviation of the revised portfolio's returns? The standard deviation will: |
|
C)
| decrease only if the correlation is negative. |
|
If the correlation coefficient is less than 1, there are benefits to diversification. Thus, adding the stock will reduce the portfolio's standard deviation.
作者: mouse123 时间: 2012-3-29 14:20
As the correlation between the returns of two assets becomes lower, the risk reduction potential becomes: |
|
C)
| decreased by the same level. |
|
Perfect positive correlation (r = +1) of the returns of two assets offers no risk reduction, whereas perfect negative correlation (r = -1) offers the greatest risk reduction.
作者: mouse123 时间: 2012-3-29 14:21
Adding a stock to a portfolio will reduce the risk of the portfolio if the correlation coefficient is less than which of the following?
Adding any stock that is not perfectly correlated with the portfolio (+1) will reduce the risk of the portfolio.
作者: mouse123 时间: 2012-3-29 14:21
Stock A has a standard deviation of 4.1% and Stock B has a standard deviation of 5.8%. If the stocks are perfectly positively correlated, which portfolio weights minimize the portfolio’s standard deviation?
Because there is a perfectly positive correlation, there is no benefit to diversification. Therefore, the investor should put all his money into Stock A (with the lowest standard deviation) to minimize the risk (standard deviation) of the portfolio.
作者: andytrader 时间: 2012-3-29 14:22
Which one of the following statements about correlation is NOT correct? A)
| Potential benefits from diversification arise when correlation is less than +1. |
|
B)
| If the correlation coefficient were -1, a zero variance portfolio could be constructed. |
|
C)
| If the correlation coefficient were 0, a zero variance portfolio could be constructed. |
|
A correlation coefficient of zero means that there is no relationship between the stock's returns. The other statements are true.
作者: andytrader 时间: 2012-3-29 14:22
There are benefits to diversification as long as: A)
| the correlation coefficient between the assets is less than 1. |
|
B)
| there is perfect positive correlation between the assets. |
|
C)
| there must be perfect negative correlation between the assets. |
|
There are benefits to diversification as long as the correlation coefficient between the assets is less than 1.
作者: andytrader 时间: 2012-3-29 14:23
Stock A has a standard deviation of 0.5 and Stock B has a standard deviation of 0.3. Stock A and Stock B are perfectly positively correlated. According to Markowitz portfolio theory how much should be invested in each stock to minimize the portfolio's standard deviation? A)
| 30% in Stock A and 70% in Stock B. |
|
|
C)
| 50% in Stock A and 50% in Stock B. |
|
Since the stocks are perfectly correlated, there is no benefit from diversification. So, invest in the stock with the lowest risk.
作者: andytrader 时间: 2012-3-29 14:23
Which of the following statements about portfolio theory is least accurate? A)
| Assuming that the correlation coefficient is less than one, the risk of the portfolio will always be less than the simple weighted average of individual stock risks. |
|
B)
| For a two-stock portfolio, the lowest risk occurs when the correlation coefficient is close to negative one. |
|
C)
| When the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will not decrease the overall portfolio standard deviation. |
|
When the return on an asset added to a portfolio has a correlation coefficient of less than one with the other portfolio asset returns but has the same risk, adding the asset will decrease the overall portfolio standard deviation. Any time the correlation coefficient is less than one, there are benefits from diversification. The other choices are true.
作者: andytrader 时间: 2012-3-29 14:24
Kendra Jackson, CFA, is given the following information on two stocks, Rockaway and Bridgeport. - Covariance between the two stocks = 0.0325
- Standard Deviation of Rockaway’s returns = 0.25
- Standard Deviation of Bridgeport’s returns = 0.13
Assuming that Jackson must construct a portfolio using only these two stocks, which of the following combinations will result in the minimum variance portfolio? |
B)
| 50% in Bridgeport, 50% in Rockaway. |
|
C)
| 80% in Bridgeport, 20% in Rockaway. |
|
First, calculate the correlation coefficient to check whether diversification will provide any benefit.rBridgeport, Rockaway = covBridgeport, Rockaway / [( sBridgeport) × (sRockaway) ] = 0.0325 / (0.13 × 0.25) = 1.00
Since the stocks are perfectly positively correlated, there are no diversification benefits and we select the stock with the lowest risk (as measured by variance or standard deviation), which is Bridgeport.
作者: andytrader 时间: 2012-3-29 14:24
An investment manager is looking at ten possible stocks to include in a client’s portfolio. In order to achieve the maximum efficiency of the portfolio, the manager must: A)
| find the combination of stocks that produces a portfolio with the maximum expected rate of return at a given level of risk. |
|
B)
| include only the stocks that have the lowest volatility at a given expected rate of return. |
|
C)
| include all ten stocks in the portfolio in equal amounts. |
|
The most efficient portfolio will be the one that lies on the efficient frontier. It will offer the highest expected return at a given level of risk compared to all other possible portfolios.
作者: andytrader 时间: 2012-3-29 14:25
Which of the following statements best describes an investment that is not on the efficient frontier? A)
| There is a portfolio that has a lower risk for the same return. |
|
B)
| There is a portfolio that has a lower return for the same risk. |
|
C)
| The portfolio has a very high return. |
|
The efficient frontier outlines the set of portfolios that gives investors the highest return for a given level of risk or the lowest risk for a given level of return. Therefore, if a portfolio is not on the efficient frontier, there must be a portfolio that has lower risk for the same return. Equivalently, there must be a portfolio that produces a higher return for the same risk.
作者: andytrader 时间: 2012-3-29 14:25
Which of the following statements concerning the efficient frontier is most accurate? It is the: A)
| set of portfolios that gives investors the lowest risk. |
|
B)
| set of portfolios that gives investors the highest return. |
|
C)
| set of portfolios where there are no more diversification benefits. |
|
The efficient frontier outlines the set of portfolios that gives investors the highest return for a given level of risk or the lowest risk for a given level of return. It is also the point at which there are no more benefits to diversification.
作者: andytrader 时间: 2012-3-29 14:25
Which one of the following portfolios does not lie on the efficient frontier?| Portfolio | Expected Return | Standard Deviation |
| A | 7 | 5 |
| B | 9 | 12 |
| C | 11 | 10 |
| D | 15 | 15 |
Portfolio B has a lower expected return than Portfolio C with a higher standard deviation.
作者: andytrader 时间: 2012-3-29 14:26
In a two-asset portfolio, reducing the correlation between the two assets moves the efficient frontier in which direction? A)
| The efficient frontier is stable unless the asset’s expected volatility changes. This depends on each asset’s standard deviation. |
|
B)
| The frontier extends to the left, or northwest quadrant representing a reduction in risk while maintaining or enhancing portfolio returns. |
|
C)
| The efficient frontier is stable unless return expectations change. If expectations change, the efficient frontier will extend to the upper right with little or no change in risk. |
|
Reducing correlation between the two assets results in the efficient frontier expanding to the left and possibly slightly upward. This reflects the influence of correlation on reducing portfolio risk.
作者: andytrader 时间: 2012-3-29 14:26
On a graph of risk, measured by standard deviation and expected return, the efficient frontier represents: A)
| the group of portfolios that have extreme values and therefore are “efficient” in their allocation. |
|
B)
| all portfolios plotted in the northeast quadrant that maximize return. |
|
C)
| the set of portfolios that dominate all others as to risk and return. |
|
The efficient set is the set of portfolios that dominate all other portfolios as to risk and return. That is, they have highest expected return at each level of risk.
作者: andytrader 时间: 2012-3-29 14:27
Which of the following statements about the efficient frontier is NOT correct? A)
| The efficient frontier line bends backwards due to less than perfect correlation between assets. |
|
B)
| A portfolio to the left of the efficient frontier is not attainable, while a portfolio to the right of the efficient frontier is inefficient. |
|
C)
| The slope of the efficient frontier increases steadily as one moves up the curve. |
|
This statement should read, "The slope of the efficient frontier decreases steadily as one moves up the curve." The other statements are true.
作者: andytrader 时间: 2012-3-29 14:27
In a set of portfolios, the portfolio with the highest rate of return, but the same variance of the rate of return as the others, would be considered a(n): A)
| positive beta portfolio. |
|
|
C)
| positive alpha portfolio. |
|
The efficient frontier, which represents the set of portfolios that provides the highest return at each level of risk, is comprised of efficient portfolios. The optimal portfolio for each investor is the point on the highest indifference curve that is tangent to the efficient frontier.
作者: andytrader 时间: 2012-3-29 14:27
Which of the following inputs is least likely required for the Markowitz efficient frontier? The: A)
| covariation between all securities. |
|
B)
| expected return of all securities. |
|
C)
| level of risk aversion in the market. |
|
The level of risk aversion in the market is not a required input. The model requires that investors know the expected return and variance of each security as well as the covariance between all securities.
作者: andytrader 时间: 2012-3-29 14:28
The basic premise of the risk-return trade-off suggests that risk-averse individuals purchasing investments with higher non-diversifiable risk should expect to earn: A)
| lower rates of return. |
|
B)
| higher rates of return. |
|
C)
| rates of return equal to the market. |
|
Investors are risk averse.
Given a choice between two assets with equal rates of return, the investor will always select the asset with the lowest level of risk.
This means that there is a positive relationship between expected returns (ER) and expected risk (Es) and the risk return line (capital market line [CML] and security market line [SML]) is upward sweeping.
作者: andytrader 时间: 2012-3-29 14:28
Which of the following statements about portfolio diversification is CORRECT? A)
| When a risk-averse investor is confronted with two investment opportunities having the same expected return, the investor will take the opportunity with the lower risk. |
|
B)
| The efficient frontier represents individual securities. |
|
C)
| As the correlation coefficient moves from +1 to zero, the potential for diversification diminishes. |
|
The other statements are false. The lower the correlation coefficient; the greater the potential for diversification. Efficient portfolios lie on the efficient frontier.
作者: andytrader 时间: 2012-3-29 14:29
Which of the following statements best describes risk aversion? A)
| Given a choice between two assets of equal return, the investor will choose the asset with the least risk. |
|
B)
| There is an indirect relationship between expected returns and expected risk. |
|
C)
| The investor will always choose the asset with the least risk. |
|
Risk aversion is best defined as: given a choice between two assets of equal return, the investor will choose the asset with the least risk. The investor will not always choose the asset with the least risk or the asset with the least risk and least return. As well, there is a positive, not indirect, relationship between risk and return.
作者: andytrader 时间: 2012-3-29 14:30
A line that represents the possible portfolios that combine a risky asset and a risk free asset is most accurately described as a: |
B)
| capital allocation line. |
|
|
The line that represents possible combinations of a risky asset and the risk-free asset is referred to as a capital allocation line (CAL). The capital market line (CML) represents possible combinations of the market portfolio with the risk-free asset. A characteristic line is the best fitting linear relationship between excess returns on an asset and excess returns on the market and is used to estimate an asset's beta.
作者: andytrader 时间: 2012-3-29 14:31
The particular portfolio on the efficient frontier that best suits an individual investor is determined by: A)
| the current market risk-free rate as compared to the current market return rate. |
|
B)
| the individual's asset allocation plan. |
|
C)
| the individual's utility curve. |
|
The optimal portfolio for each investor is the highest indifference curve that is tangent to the efficient frontier.
The optimal portfolio is the portfolio that gives the investor the greatest possible utility.
作者: andytrader 时间: 2012-3-29 14:31
Investors who are less risk averse will have what type of utility curves?
Investors who are less risk averse will have flat utility curves, meaning they are willing to take on more risk for a slightly higher return. Investors who are more risk averse require a much higher return to accept more risk, producing a steep utility curve.
作者: andytrader 时间: 2012-3-29 14:32
The graph below combines the efficient frontier with the indifference curves for two different investors, X and Y.
Which of the following statements about the above graph is least accurate? A)
| The efficient frontier line represents the portfolios that provide the highest return at each risk level. |
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B)
| Investor X's expected return will always be less than that of Investor Y. |
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C)
| Investor X is less risk-averse than Investor Y. |
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Investor X has a steep indifference curve, indicating that he is risk-averse. Flatter indifference curves, such as those for Investor Y, indicate a less risk-averse investor. The other choices are true. A more risk-averse investor will likely obtain lower returns than a less risk-averse investor.
作者: andytrader 时间: 2012-3-29 14:32
According to Markowitz, an investor’s optimal portfolio is determined where the: A)
| investor's highest utility curve is tangent to the efficient frontier. |
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B)
| investor's lowest utility curve is tangent to the efficient frontier. |
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C)
| investor's utility curve meets the efficient frontier. |
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The optimal portfolio for an investor is determined as the point where the investor’s highest utility curve is tangent to the efficient frontier.
作者: andytrader 时间: 2012-3-29 14:33
The optimal portfolio in the Markowitz framework occurs when an investor achieves the diversified portfolio with the:
The optimal portfolio in the Markowitz framework occurs when the investor achieves the diversified portfolio with the highest utility.
作者: andytrader 时间: 2012-3-29 14:33
Which of the following statements about the optimal portfolio is NOT correct? The optimal portfolio: A)
| is the portfolio that gives the investor the maximum level of return. |
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B)
| lies at the point of tangency between the efficient frontier and the indifference curve with the highest possible utility. |
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C)
| may be different for different investors. |
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This statement is incorrect because it does not specify that risk must also be considered.
作者: andytrader 时间: 2012-3-29 14:33
Which of the following statements about the efficient frontier is least accurate? A)
| Portfolios falling on the efficient frontier are fully diversified. |
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B)
| Investors will want to invest in the portfolio on the efficient frontier that offers the highest rate of return. |
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C)
| The efficient frontier shows the relationship that exists between expected return and total risk in the absence of a risk-free asset. |
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The optimal portfolio for each investor is the highest indifference curve that is tangent to the efficient frontier.
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