Reading 66: Portfolio Concepts-LOS a 习题精选 assets, return, expected, standard, 2011

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Session 18: Portfolio Management: Capital Market Theory and the Portfolio Management Process
Reading 66: Portfolio Concepts

LOS a: Discuss mean–variance analysis and its assumptions, and calculate the expected return and the standard deviation of return for a portfolio of two or three assets.

 

 

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

A) correlations among asset returns.

B) expected asset returns.

C) skewness of the distribution of asset returns.

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

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

B) are not willing to make risky investments.

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

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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.

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Which of the following statements is least accurate regarding modern portfolio theory?

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

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

C) 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.

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All portfolios on the capital allocation line are perfectly positively correlated. Both remaining statements are each true.

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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%.

B) 11.50%.

C) 12.00%.

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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.

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The standard deviation of the portfolio is closest to:

A) 0.0839.

B) 0.0070.

C) 0.0909.

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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.