Reading 68: LOS a (Part 2) ～ Q16- 19 following, style, black, class

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16．Given the following information, what is the expected return on the portfolio of the two funds?

	The Washington Fund	The Jefferson Fund
Expected Return	30%	36%
Variance	0.0576	0.1024
Investment	$2,000,000	$6,000,000
Correlation	0.40

A)   34.5%.

B)   31.5%.

C)   9.1%.

D)   33.0%.

17．Which of the following statements is FALSE regarding modern portfolio theory?

A)   The capital market line is developed under the assumption that investors can borrow or lend at the risk-free rate.

B)   All portfolios on the capital allocation line are perfectly negatively correlated.

C)   Risky assets have uncertain future returns, and uncertainty is measured by the variance or standard deviation of returns.

D)   For a portfolio made up of the risk-free asset and a risky asset, the standard deviation is the weighted proportion of the standard deviation of the risky asset.

18．Joe Janikowski owns a portfolio consisting of 2 stocks. Janikowski has compiled the following information:

Stock	Topper Manufacturing		Base Construction
Expected Return (percent	12		11
Standard Deviation (percent)	10		15
Portfolio Weighting (percent)	75		25
Correlation		0.22

The expected return for the portfolio is:

A)   11.75 percent.

B)   11.50 percent.

C)   11.00 percent.

D)   12.00 percent.

19.The standard deviation of the portfolio is closest to:

A)   0.0839.

B)   0.0095.

C)   0.0909.

D)   0.0070.

[此贴子已经被作者于2008-4-18 15:41:31编辑过]

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16．Given the following information, what is the expected return on the portfolio of the two funds?

	The Washington Fund	The Jefferson Fund
Expected Return	30%	36%
Variance	0.0576	0.1024
Investment	$2,000,000	$6,000,000
Correlation	0.40

A)   34.5%.

B)   31.5%.

C)   9.1%.

D)   33.0%.

The correct answer was A)

First calculate the portfolio weights on each fund:

W_Wash = $2 million/$8 million = 0.25

W_Jeff = $6 million/$8 million = 0.75

The expected portfolio return is the weighted average of the funds' expected returns:

E(R_P) = (0.25)(30%) + (0.75)(36%) = 34.5%.

17．Which of the following statements is FALSE regarding modern portfolio theory?

A)   The capital market line is developed under the assumption that investors can borrow or lend at the risk-free rate.

B)   All portfolios on the capital allocation line are perfectly negatively correlated.

C)   Risky assets have uncertain future returns, and uncertainty is measured by the variance or standard deviation of returns.

D)   For a portfolio made up of the risk-free asset and a risky asset, the standard deviation is the weighted proportion of the standard deviation of the risky asset.

The correct answer was B)

All portfolios on the capital allocation line are perfectly positively correlated. The other statements are all true.

18．Joe Janikowski owns a portfolio consisting of 2 stocks. Janikowski has compiled the following information:

Stock	Topper Manufacturing		Base Construction
Expected Return (percent	12		11
Standard Deviation (percent)	10		15
Portfolio Weighting (percent)	75		25
Correlation		0.22

The expected return for the portfolio is:

A)   11.75 percent.

B)   11.50 percent.

C)   11.00 percent.

D)   12.00 percent.

The correct answer was A)

Expected return is computed by weighting each stock as a percentage of the entire portfolio, and then multiplying each stock by the expected return. The expected return is: ((0.75 * 12) + (0.25 * 11) =) 11.75.

19.The standard deviation of the portfolio is closest to:

A)   0.0839.

B)   0.0095.

C)   0.0909.

D)   0.0070.

The correct answer was C)

The formula for the standard deviation of a two-stock portfolio is: the square root of [((0.75)² * (0.10)²) + ((0.25)² * (0.15)²) + (2 * (0.75) * (0.25) * (0.22) * (0.15) * (0.10)) =] 0.0909.

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