[LEVEL II 模拟试题4] Mock Level II - Question 10 模拟试题

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Question 10 - 10613

Financial planner Rhonda Culver, CFA, has just finished meeting with two clients. One of the clients, Bill Jones, has a high tolerance for risk, while the other client, Bertha Smith, appears very risk averse. Both expect high returns from their portfolios.

In an effort to provide both clients with their optimum portfolios, Culver turns to portfolio theory for guidance. In her meeting with Smith, she provides the following information about portfolio theory in an effort to explain her investment advice:

• To decrease the risk in a portfolio, you can add an asset that is poorly correlated with other assets in the portfolio.

• Sometimes an asset that is riskier than others in the portfolio on a stand-alone basis can, when added to the mix, decrease overall risk.

• The range of possible returns is a useful gauge of portfolio risk because it is less sensitive to outliers. 

• The variance measures the likelihood that the realized return will differ from the expected return.

Smith currently has a portfolio that has a risk-return profile that is below the efficient frontier. Based on the impressions Culver gets from Smith, she draws up Smith’s indifference curves to show Smith how they relate to changes in market risk and to the efficient frontier. Culver resolves to develop an asset-allocation plan that will get Smith’s portfolio on the efficient frontier.

Jones currently has no investments, but wants to start buying a mix of U.S. and foreign stocks immediately. In her meeting with Jones, Culver attempts to explain the efficient frontier and the benefits of portfolio diversification. Jones is excited about the possibilities and sets the following goals:

• Get me a portfolio that plots just above the capital market line.

• Include some bonds in the portfolio, but these must not reduce returns while reducing risk.

• Max out my returns by selling the risk-free asset short.

• I want my portfolio to have a correlation of 1.

Part 1)
Jones has set aggressive goals with his portfolio. Which of the following requests is Culver most likely to be able deliver?

A)	Get me a portfolio just above the capital market line.
B)	Include some bonds in the portfolio, but these must not reduce returns while reducing risk.
C)	Max out my returns by selling the risk-free asset short.
D)	I want my portfolio to have a correlation of 1.

Part 2)
Culver suspects Jones’ optimal portfolio lies:

A)	near the extreme left end of the efficient frontier.
B)	near the extreme right end of the efficient frontier.
C)	toward the middle of the efficient frontier.
D)	just above the efficient frontier.

Part 3)
Smith indicated a desire to invest only in U.S. securities. Culver argues that Smith should consider foreign securities because they will move the efficient frontier:

A)	up and to the right.
B)	down and to the left.
C)	up and to the left.
D)	down and to the right.

Part 4)
How does the addition of a riskless asset change the efficient frontier conceived by Markowitz? The efficient frontier:

A)	changes from a curve to a straight line called the security market line.
B)	becomes flatter and shifts to the right.
C)	changes from a curve to a straight line called the capital market line.
D)	becomes more bowed and shifts to the right.

Part 5)
Culver’s illustration of Smith’s indifference curves most likely shows:

A)	the indifference curves not intersecting the efficient frontier.
B)	no optimum portfolios on the indifference curves.
C)	indifference curves for different risk levels intersecting near the top end.
D)	steep slopes on all the indifference curves.

Part 6)
Which of the statements Culver made to Smith is FALSE?

A)	To decrease the risk in a portfolio, you can add an asset that is poorly correlated with other assets in the portfolio.
B)	The range of possible returns is a useful gauge of portfolio risk because it is less sensitive to outliers.
C)	Sometimes an asset that is riskier than others in the portfolio on a stand-alone basis can, when added to the mix, decrease overall risk.
D)	The variance measures the likelihood that the realized return will differ from the expected return.

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Question

10 - #10613

Part 1)
Your answer: B was correct!

It may be possible to include some bonds in the portfolio that have expected returns that are comparable to equities if these are high yield bonds. Such bonds, because they have a relatively low correlation to equities, would also have the effect of reducing overall portfolio risk. The other requests are impossible in practice, or do not make sense.

Part 2)
Your answer: B was correct!

The optimal portfolio for an investor with a high risk tolerance will be near the right end of the efficient frontier. This point reflects the desire for high returns at the cost of assuming greater risk. A portfolio above the efficient frontier is not attainable.

Part 3)
Your answer: B was incorrect. The correct answer was C) up and to the left.

The addition of international securities, if they are not perfectly correlated with her other securities, will move the frontier up and to the left.

Part 4)
Your answer: B was incorrect. The correct answer was C) changes from a curve to a straight line called the capital market line.

Since the correlation between the riskless asset and any other asset is zero, the risk/return trade-off for the riskless asset and any other asset becomes linear. Thus, the addition of the riskless asset transforms the Markowitz efficient frontier into the capital market line (CML). The CML is a straight line extending from the risk-free rate on the vertical axis that is tangent to the Markowitz efficient frontier. Like the efficient frontier, the CML uses the standard deviation as the appropriate risk measure, whereas the security market line (SML) uses beta as the measure of risk.

Part 5)
Your answer: B was incorrect. The correct answer was D) steep slopes on all the indifference curves.

Conservative investors tend to have steep indifference curves. While it is theoretically possible that the indifference curve does not intersect the efficient frontier, most will. Where the indifference curve is tangent to the efficient frontier, we find the optimum portfolio. An individual investor’s indifference curves can never intersect.

Part 6)
Your answer: B was correct!

The range of returns is extremely sensitive to outliers. The other statements are true.