Reading 68: LOS a (Part 1) ～ Q1- 2 style, black, class, means, which

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1.One of the assumptions of mean-variance analysis is that all investors are risk-averse, which means they:

A)   are not willing to make risky investments.

B)   prefer less risk to more for any given level of volatility.

C)   prefer less risk to more for any given level of expected return.

D)   prefer symmetric asset return distributions, all else equal.

2.Mean-variance analysis assumes that investor preferences depend on all of the following EXCEPT:

A)   expected asset returns.

B)   asset return variances.

C)   correlations among asset returns.

D)   skewness of the distribution of asset returns.

[此贴子已经被作者于2008-4-18 15:43:33编辑过]

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1.One of the assumptions of mean-variance analysis is that all investors are risk-averse, which means they:

A)   are not willing to make risky investments.

B)   prefer less risk to more for any given level of volatility.

C)   prefer less risk to more for any given level of expected return.

D)   prefer symmetric asset return distributions, all else equal.

The correct answer was C)

In mean-variance analysis we assume that all investors are risk averse, which means they prefer less risk to more for any given level of expected return (NOT for any given level of volatility.) It does NOT mean that they are unwilling to take on any risk. Risk aversion does not depend on the skewness of asset return distributions.

2.Mean-variance analysis assumes that investor preferences depend on all of the following EXCEPT:

A)   expected asset returns.

B)   asset return variances.

C)   correlations among asset returns.

D)   skewness of the distribution of asset returns.

The correct answer was D)     

Mean-variance analysis assumes that investors only need to know expected returns, variances, and covariances in order create optimal portfolios. The skewness of the distribution of expected returns can be ignored.

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