6.Which of the following statements regarding the graph of return vs. risk for all possible portfolio combinations consisting of Funds A, B, and C is FALSE?

A)   If the objective of the portfolio manager is to maximize return the optimal portfolio must lie on the curved line above the minimum-variance portfolio.

B)   As the correlation between the two funds decreases the line representing all combinations will curve further to the left.

C)   Combinations of Fund A, B, and C will dominate all other combinations of portfolios that have a lower return for the same level of risk.

D)   If the objective of the portfolio manager is to minimize risk the optimal portfolio must lie on the curved line below the minimum-variance portfolio.

7．The beta of Fund A is 1.2, the expected return of T-bills is 5 percent and the standard deviation for the market is 13 percent. What is the covariance between the market portfolio and Fund A?

A)   0.081.

B)   0.106.

C)   0.156.

D)   0.020.

8．Sandy Wilson is a research analyst for WWW Equities Investments. She has just finished collecting the information on Table 1 to answer questions posed by her supervisor, Jackie Lewis. For example, using the Capital Market Line (CML), Lewis wants to know the market price of risk. Also, given all the attention paid to index funds in recent years, Lewis asked Wilson to see if any one of the securities would prove a better investment than the S& 500. If not, can she compose a portfolio from stocks A, B, and C that is more efficient than the S& 500?

Lewis wants Wilson to explore whether the results on Table 1 are congruent with the Capital Asset Pricing Model (CAPM). Using a regression analysis where the S& 500 represents the market portfolio, she computes the beta of Stock A, and finds that it equals one. Using this, she will derive the betas of the other stocks and compare them to betas estimated with other techniques. As she performs her calculations, she reviews reasons why her results might not be congruent with the CAPM. Lewis asserts that the S& 500 may not be a good proxy for “the market portfolio” needed for CAPM calculations.

Table 1

Assuming that the S& 500 is the market portfolio and her estimates are accurate, what is the price of risk based on the slope of the Capital Market Line (CML)?

A)   0.250.

B)   0.409.

C)   0.545.

D)   0.682.

9．What is the expected return and standard deviation of a portfolio that consists of 40 percent of stock A and 60 percent of stock B?

A)   Expected Return: 13.8%, Standard Deviation: 33.0%.

B)   Expected Return: 13.8%, Standard Deviation: 28.0%.

C)   Expected Return: 12.5%, Standard Deviation: 32.5%.

D)   Expected Return: 13.8%, Standard Deviation: 29.5%.

10．Wilson uses the computed beta of stock A, the covariance of stock A and B, and their standard deviations to compute stock B’s beta. Given stock B’s expected return, the results are:

A)   congruent with the CAPM, which does not support Lewis’ assertion concerning the S& 500 as a proxy for the market.

B)   not congruent with the CAPM, which supports Lewis’ assertion concerning the S& 500 as a proxy for the market.

C)   congruent with the CAPM, which supports Lewis’ assertion concerning the S& 500 as a proxy for the market.

D)   not congruent with the CAPM, which does not support Lewis’ assertion concerning the S& 500 as a proxy for the market.

[此贴子已经被作者于2008-4-18 15:42:53编辑过]

6.Which of the following statements regarding the graph of return vs. risk for all possible portfolio combinations consisting of Funds A, B, and C is FALSE?

A)   If the objective of the portfolio manager is to maximize return the optimal portfolio must lie on the curved line above the minimum-variance portfolio.

B)   As the correlation between the two funds decreases the line representing all combinations will curve further to the left.

C)   Combinations of Fund A, B, and C will dominate all other combinations of portfolios that have a lower return for the same level of risk.

D)   If the objective of the portfolio manager is to minimize risk the optimal portfolio must lie on the curved line below the minimum-variance portfolio.

The correct answer was D)

The curved line below the minimum-variance portfolio represents all portfolio combinations that are dominated by other portfolio combinations. Based on the efficient frontier created by these two funds higher returns at the same level of risk can be achieved above the minimum-variance portfolio.

7．The beta of Fund A is 1.2, the expected return of T-bills is 5 percent and the standard deviation for the market is 13 percent. What is the covariance between the market portfolio and Fund A?

A)   0.081.

B)   0.106.

C)   0.156.

D)   0.020.

The correct answer was D)

The beta for fund A is equal to the covariance of fund A and the market divided by the variance of the market. Therefore, 1.2 = COV(A,Market)/(0.13)²  

Solving for COV(A,Market) = 1.2 (0.13)² = 0.0203.

8．Sandy Wilson is a research analyst for WWW Equities Investments. She has just finished collecting the information on Table 1 to answer questions posed by her supervisor, Jackie Lewis. For example, using the Capital Market Line (CML), Lewis wants to know the market price of risk. Also, given all the attention paid to index funds in recent years, Lewis asked Wilson to see if any one of the securities would prove a better investment than the S& 500. If not, can she compose a portfolio from stocks A, B, and C that is more efficient than the S& 500?

Lewis wants Wilson to explore whether the results on Table 1 are congruent with the Capital Asset Pricing Model (CAPM). Using a regression analysis where the S& 500 represents the market portfolio, she computes the beta of Stock A, and finds that it equals one. Using this, she will derive the betas of the other stocks and compare them to betas estimated with other techniques. As she performs her calculations, she reviews reasons why her results might not be congruent with the CAPM. Lewis asserts that the S& 500 may not be a good proxy for “the market portfolio” needed for CAPM calculations.

Table 1

Assuming that the S& 500 is the market portfolio and her estimates are accurate, what is the price of risk based on the slope of the Capital Market Line (CML)?

A)   0.250.

B)   0.409.

C)   0.545.

D)   0.682.

The correct answer was B)

The market price of risk, or return per unit of standard deviation risk, is determined as follows: (0.12 - 0.03)/0.22 = 0.09/0.22 = 0.409.

9．What is the expected return and standard deviation of a portfolio that consists of 40 percent of stock A and 60 percent of stock B?

A)   Expected Return: 13.8%, Standard Deviation: 33.0%.

B)   Expected Return: 13.8%, Standard Deviation: 28.0%.

C)   Expected Return: 12.5%, Standard Deviation: 32.5%.

D)   Expected Return: 13.8%, Standard Deviation: 29.5%.

The correct answer was B)

E(RP) = 0.4(0.12) + 0.6(0.15) = 0.048 + 0.09 = 0.138 or 13.8%

The portfolio standard deviation is:

[(0.4)²(0.3)²+(0.6)²(0.35)²+2(0.4)(0.6)(0.3)(0.35)(0.4)]^0.5 = [0.0144 + 0.0441 + 0.02016]^0.5 = 0.2805

10．Wilson uses the computed beta of stock A, the covariance of stock A and B, and their standard deviations to compute stock B’s beta. Given stock B’s expected return, the results are:

A)   congruent with the CAPM, which does not support Lewis’ assertion concerning the S& 500 as a proxy for the market.

B)   not congruent with the CAPM, which supports Lewis’ assertion concerning the S& 500 as a proxy for the market.

C)   congruent with the CAPM, which supports Lewis’ assertion concerning the S& 500 as a proxy for the market.

D)   not congruent with the CAPM, which does not support Lewis’ assertion concerning the S& 500 as a proxy for the market.

The correct answer was B)

The provided standard deviations and covariance and the beta of stock A can be entered into the following relationship:

covariance(A,B)=(beta of A)*(beta of B)*(Variance of market) gives us

(0.3*0.35*.40)=0.042 = (1)*(beta of B)*(0.22*0.22)

beta of B = (0.042)/( 0.0484) = 0.868.

expected return of B = risk free rate + (beta of B)*(Market risk premium),

expected return of B = 0.03 + (0.868)*(0.12-0.03) = 0.108 < 0.15, which is the expected return she computed from her analysis. One explanation for this is that the S&P 500 is not a good proxy for the market portfolio.