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LOS d, (Part 2): Explain the capital allocation and the capital market lines (CAL and CML), explain the relation between them, and calculate the values of one of the variables given the values of the remaining variables.
Q1. Which of the following statements regarding the capital market line (CML) is least accurate? The CML:
A) implies that all portfolios on the CML are perfectly positively correlated.
B) dominates everything below the line on the original efficient frontier.
C) slope is equal to the expected return of the market portfolio minus the risk-free rate.
Q2. The capital market line (CML) is the capital allocation line with the:
A) global minimum-variance portfolio as the tangency portfolio.
B) market portfolio as the tangency portfolio.
C) market portfolio as the global minimum-variance portfolio.
Q3. Which of the following statements most accurately describes the capital allocation line (CAL) and the capital market line (CML)? The market portfolio:
A) always lies on both the CAL and the CML.
B) may lie on the CML, but it always lies on the CAL.
C) may lie on the CAL, but it always lies on the CML.
Q4. The capital allocation line (CAL) with the market portfolio as the tangency portfolio is the:
A) capital market line.
B) minimum variance line.
C) security market line.
Q5. If a risk-free asset is part of the investment opportunity set, then the efficient frontier is a:
A) straight line called the capital allocation line (CAL).
B) curve called the minimum-variance frontier.
C) curve called the efficient portfolio set.
Q6. Which of the following does NOT describe the capital allocation line (CAL)?
A) The CAL is tangent to the minimum-variance frontier.
B) It runs through the global minimum-variance portfolio.
C) It is the efficient frontier when a risk-free asset is available.
Q7. The equation of the capital market line (CML) says that the expected return on any portfolio equals the:
A) risk-free rate plus the product of the market risk premium and the market's portfolio standard deviation.
B) risk-free rate plus the product of the market price of risk and the market's portfolio standard deviation.
C) risk-free rate plus the product of the market price of risk and the portfolio's standard deviation.
Q8. The slope of the capital allocation line is equal to:
A) the expected return on the tangency portfolio divided by the standard deviation of the tangency portfolio.
B) the expected risk premium on the tangency portfolio divided by the standard deviation of the tangency portfolio.
C) the inverse of the slope of the security market line.
Q9. The intercept of the capital market line is the:
A) expected market return.
B) expected return on the tangency portfolio.
C) risk-free rate.
Q10. The best possible risk-return trade-off attainable, given the investor’s expectations of expected returns, variances, and covariances, is represented by the:
A) the slope of the minimum-variance frontier at the global minimum-variance portfolio.
B) slope of the capital allocation line (CAL).
C) standard deviation of the market portfolio.
Q11. Portfolio Management Associates (PMA) provides asset allocation advice for pensions. PMA recommends that all their pension clients select an appropriate weighting of the risk-free asset and the market portfolio. PMA should explain to its clients that the market portfolio is selected because the market portfolio:
A) maximizes the Sharpe ratio.
B) maximizes return and minimizes risk.
C) maximizes return.
Q12. Investment Management Inc. (IMI) uses the capital market line to make asset allocation recommendations. IMI derives the following forecasts:
- Expected return on the market portfolio: 12%
- Standard deviation on the market portfolio: 20%
- Risk-free rate: 5%
Samuel Johnson seeks IMI’s advice for a portfolio asset allocation. Johnson informs IMI that he wants the standard deviation of the portfolio to equal one half of the standard deviation for the market portfolio. Using the capital market line, the expected return that IMI can provide subject to Johnson’s risk constraint is closest to:
A) 6.0%.
B) 8.5%.
C) 7.5%.
Q13. If an investors’ portfolio lies on the capital market line (CML) at the point where the CML touches the efficient frontier then this implies the investor has:
A) 100% of their funds invested in the market portfolio.
B) less than 100% of their money invested in the market portfolio.
C) a larger percentage of their money invested in the market portfolio and have loaned the remaining amount at the risk-free rate.
Q14. Adrian Jones is the portfolio manager for Asset Allocators, Inc., (AAI). Jones has decided to alter her framework of analysis. Previously, Jones made recommendations among efficient portfolios of risky assets only. Now, Jones has decided to make recommendations that include the risk-free asset. The efficient frontier for Jones has changed shape from a:
A) curve to a line.
B) curve to the thick curve.
C) line to a curve. | 
发表于 2009-4-2 11:15
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