Reading 66: Portfolio Concepts Los f~Q12-21 capital, standard, security, expected, directly

youzizhang

 

Q12. How are the capital market line (CML) and the security market line (SML) similar?

A)   The CML and SML use the standard deviation as a risk measure.

B)   The CML and SML can be used to find the expected return of a portfolio.

C)   The market portfolio will plot directly on the CML and the SML.

 

Q13. The security market line (SML) is a graphical representation of the relationship between return and:

A)   unsystematic risk.

B)   systematic risk.

C)   total risk.

 

Q14. Rachel Stephens, CFA, examines data for two computer stocks, AAA and BBB, and derives the following results:

• Standard deviation for AAA is 0.50.
• Standard deviation for BBB is 0.50.
• Standard deviation for the S&500 is 0.20.
• Correlation between AAA and the S&500 is 0.60.
• Beta for BBB is 1.00.

Stephens is asked to identify the stock that has the highest systematic risk and the stock that has the highest unsystematic risk. Stephens should draw the following conclusions:

          Highest Systematic Risk            Highest Unsystematic Risk

 

A)        Stock AAA                                      Stock BBB

B)        Stock AAA                                      Stock AAA

C)        Stock BBB                                     Stock AAA

 

Q15. Kaskin, Inc., stock has a beta of 1.2 and Quinn, Inc., stock has a beta of 0.6. Which of the following statements is most accurate?

A)   The stock of Kaskin, Inc., has more total risk than Quinn, Inc.

B)   The expected rate of return will be higher for the stock of Kaskin, Inc., than that of Quinn, Inc.

C)   The stock of Quinn, Inc., has more systematic risk than that of Kaskin, Inc.

 

Q16. Glimmer Glass has a correlation of 0.67 with the market portfolio, a variance of 23%, and an expected return of 14%. The market portfolio has an expected return of 11% and a variance of 13%. Glimmer stock is approximately:

A)   4% more volatile than the average stock.

B)   11% less volatile than the average stock.

C)   19% more volatile than the average stock.

 

Q17. Which of the following statements about using the capital asset pricing model (CAPM) to value stocks is least accurate?

A)   If the CAPM expected return is too low, then the asset’s price is too high.

B)   The model reflects how market forces restore investment prices to equilibrium levels.

C)   The CAPM reflects unsystematic risk using standard deviation.

 

Q18. The capital market line:

A)   helps determine asset allocation.

B)   uses nondiversifiable risk.

C)   has a slope equal to the market risk premium.

 

Q19. Jim Williams, CFA, manages individual investors' portfolios for Clarence Farlow Associates. Clarence Farlow Jr., CEO of Clarence Farlow Associates, is looking for some new investment ideas. Farlow is obsessive about value, however, and never buys stocks that look expensive. He has assigned Williams to assess the investment merits of several securities. Specifically, Williams has collected the following data for three possible investments.

Stock	Price Today	Forecasted Price*	Dividend	Beta
Alpha	25	31	2	1.6
Omega	105	110	1	1.2
Lambda	10	10.80	0	0.5
*Forecast Price = expected price one year from today.

Williams plans to value the three securities using the security market line, and has assembled the following information for use in his valuation:

• Securities markets are in equilibrium.
• The prime interest rate is expected to rise by about 2% in the year ahead.
• Inflation is expected to be 1% over the upcoming year.
• The expected return on the market is 12% and the risk-free rate is 4%.
• The market portfolio's standard deviation is 40%.

Williams eventually decides to construct a portfolio consisting of 10 shares of Alpha, 2 shares of Omega, and 20 shares of Lambda.

Based on valuation via the SML, which of the following statements is most accurate?

A)   Williams should buy Alpha but not Omega.

B)   Both Alpha and Omega are overpriced.

C)   Neither Alpha nor Lambda is correctly priced.

 

Q20. The covariance of Omega with the market portfolio is closest to:

A)   0.192.

B)   0.576.

C)   0.480.

 

Q21. Williams calculates the required return for Omega. According to the capital asset pricing model (CAPM) the required return is closest to:

A)   13.6%.

B)   12.0%.

C)   5.7%.

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年后了

1. bat an eye (show surprise, fear, or interest) 眨一下眼睛（表示惊讶、恐惧等）该成语通常用于否定句中，表示不露声色。
例：Tom told his story without batting an eye, although not a world of it was true.
虽然没有一句话是真的，汤姆编造故事却面不改色。
2. be all fingers and thumbs做事笨手笨脚
例：He could not undo the string of the parcel ---- she was all fingers and thumbs.
他怎么也解不开包袱上的绳子 ---- 真是笨手笨脚。
　
3. be born with a silver spoon in one's mouth (born with inherited privilege or wealth) 门第高贵；出生富豪
[注] 银具是富裕人家身份的象征之一，生在富贵人家的孩子多用银匙 (silver spoon) 喂食。
例：When does she know about hardship ---- she was born with a silver spoon in her mouth.
她根本就不知道什么叫艰难 ---- 他出生在富贵人家。

4. be in sth. up to one's neck (be very much and very seriously involved in) 深陷于......中
例：She said she knew nothing about the robbery, but I'm sure she's in it up to her neck.
她说她对这起抢劫案一无所知，不过我敢肯定她深深卷入其中。

5. bite the hand that feeds one (be very ungrateful) 忘恩负义；以怨报德
例：She felt that her protégé had bitten the hand that fed him by making unkind remarks about her in public.
她觉得她的被保护人在公开场合讲有损她的话是忘恩负义。

6. bite off sb's nose (scold sb. severely; disagree with sb. in a bad manner) 气势汹汹地回答某人；声色俱厉地训斥某人
[注] 也作snap off sb's head。该成语最早出现于16世纪。到了18世纪，有人用动词 snap 替换该成语中的 bite 一词。
例：She bites off his nose on the faintest provocation.
不管有事无事，她动不动就声色俱厉地训斥他。