投资学第7版Test Bank答案07

投资学第7版TestBank答案07投资学第7版TestBank答案07投资学第7版TestBank答案07投资学第7版TestBank答案07编制仅供参考审核批准生效日期地址：电话：传真:邮编:MultipleChoiceQuestions 1. Marketriskisalsoreferredtoas A) systematicrisk,diversifiablerisk. B) systematicrisk,nondiversifiablerisk. C) uniquerisk,nondiversifiablerisk. D) uniquerisk,diversifiablerisk. E) noneoftheabove.Answer:BDifficulty:Easy Rationale:Market,systematic,andnondiversifiableriskaresynonymsreferringtotheriskthatcannotbeeliminatedfromtheportfolio.Diversifiable,unique,nonsystematic,andfirm-specificrisksaresynonymsreferringtotheriskthatcanbeeliminatedfromtheportfoliobydiversification. 2. Theriskthatcanbediversifiedawayis A) firmspecificrisk. B) beta. C) systematicrisk. D) marketrisk. E) noneoftheabove.Answer:ADifficulty:Easy Rationale:Seeexplanationsfor1and2above. 3. Thevarianceofaportfolioofriskysecurities A) isaweightedsumofthesecurities'variances. B) isthesumofthesecurities'variances. C) istheweightedsumofthesecurities'variancesandcovariances. D) isthesumofthesecurities'covariances. E) noneoftheabove.Answer:CDifficulty:Moderate Rationale:Thevarianceofaportfolioofriskysecuritiesisaweightedsumtakingintoaccountboththevarianceoftheindividualsecuritiesandthecovariancesbetweensecurities.

4. Theexpectedreturnofaportfolioofriskysecurities A) isaweightedaverageofthesecurities'returns. B) isthesumofthesecurities'returns. C) istheweightedsumofthesecurities'variancesandcovariances. D) AandC. E) noneoftheabove.Answer:ADifficulty:Easy 5. Otherthingsequal,diversificationismosteffectivewhen A) securities'returnsareuncorrelated. B) securities'returnsarepositivelycorrelated. C) securities'returnsarehigh. D) securities'returnsarenegativelycorrelated. E) BandC.Answer:DDifficulty:Moderate Rationale:Negativecorrelationamongsecuritiesresultsinthegreatestreductionofportfoliorisk,whichisthegoalofdiversification. 6. Theefficientfrontierofriskyassetsis A) theportionoftheinvestmentopportunitysetthatliesabovetheglobalminimumvarianceportfolio. B) theportionoftheinvestmentopportunitysetthatrepresentsthehigheststandarddeviations. C) theportionoftheinvestmentopportunitysetwhichincludestheportfolioswiththeloweststandarddeviation. D) thesetofportfoliosthathavezerostandarddeviation. E) bothAandBaretrue.Answer:ADifficulty:Moderate Rationale:Portfoliosontheefficientfrontierarethoseprovidingthegreatestexpectedreturnforagivenamountofrisk.Onlythoseportfoliosabovetheglobalminimumvarianceportfoliomeetthiscriterion.

7. TheCapitalAllocationLineprovidedbyarisk-freesecurityandNriskysecuritiesis A) thelinethatconnectstherisk-freerateandtheglobalminimum-varianceportfoliooftheriskysecurities. B) thelinethatconnectstherisk-freerateandtheportfoliooftheriskysecuritiesthathasthehighestexpectedreturnontheefficientfrontier. C) thelinetangenttotheefficientfrontierofriskysecuritiesdrawnfromtherisk-freerate. D) thehorizontallinedrawnfromtherisk-freerate. E) noneoftheabove.Answer:CDifficulty:Moderate Rationale:TheCapitalAllocationLinerepresentsthemostefficientcombinationsoftherisk-freeassetandriskysecurities.OnlyCmeetsthatdefinition. 8. Consideraninvestmentopportunitysetformedwithtwosecuritiesthatareperfectlynegativelycorrelated.Theglobalminimumvarianceportfoliohasastandarddeviationthatisalways A) greaterthanzero. B) equaltozero. C) equaltothesumofthesecurities'standarddeviations. D) equalto-1. E) noneoftheabove.Answer:BDifficulty:Difficult Rationale:Iftwosecuritieswereperfectlynegativelycorrelated,theweightsfortheminimumvarianceportfolioforthosesecuritiescouldbecalculated,andthestandarddeviationoftheresultingportfoliowouldbezero. 9. Whichofthefollowingstatementsis(are)trueregardingthevarianceofaportfoliooftworiskysecurities A) Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovariance. B) Thereisalinearrelationshipbetweenthesecurities'coefficientofcorrelationandtheportfoliovariance. C) Thedegreetowhichtheportfoliovarianceisreduceddependsonthedegreeofcorrelationbetweensecurities. D) AandB. E) AandC.Answer:CDifficulty:Moderate Rationale:Thelowerthecorrelationbetweenthereturnsofthesecurities,themoreportfolioriskisreduced.

10. EfficientportfoliosofNriskysecuritiesareportfoliosthat A) areformedwiththesecuritiesthathavethehighestratesofreturnregardlessoftheirstandarddeviations. B) havethehighestratesofreturnforagivenlevelofrisk. C) areselectedfromthosesecuritieswiththeloweststandarddeviationsregardlessoftheirreturns. D) havethehighestriskandratesofreturnandthehigheststandarddeviations. E) havetheloweststandarddeviationsandthelowestratesofreturn.Answer:BDifficulty:Moderate Rationale:Portfoliosthatareefficientarethosethatprovidethehighestexpectedreturnforagivenlevelofrisk. 11. Whichofthefollowingstatement(s)is(are)trueregardingtheselectionofaportfoliofromthosethatlieontheCapitalAllocationLine A) Lessrisk-averseinvestorswillinvestmoreintherisk-freesecurityandlessintheoptimalriskyportfoliothanmorerisk-averseinvestors. B) Morerisk-averseinvestorswillinvestlessintheoptimalriskyportfolioandmoreintherisk-freesecuritythanlessrisk-averseinvestors. C) Investorschoosetheportfoliothatmaximizestheirexpectedutility. D) AandC. E) BandC.Answer:EDifficulty:Moderate Rationale:Allrationalinvestorsselecttheportfoliothatmaximizestheirexpectedutility;forinvestorswhoarerelativelymorerisk-averse,doingsomeansinvestinglessintheoptimalriskyportfolioandmoreintherisk-freeasset.Usethefollowingtoanswerquestions12-18:ConsiderthefollowingprobabilitydistributionforstocksAandB:

12. TheexpectedratesofreturnofstocksAandBare_____and_____,respectively. A) %;9% B) 14%;10% C) %;% D) %;% E) noneoftheaboveAnswer:CDifficulty:Easy Rationale:E(RA)=(10%)+(13%)+(12%)+(14%)+(15%)=%;E(RB)=(8%)+(7%)+(6%)+(9%)+(8%)=%. 13. ThestandarddeviationsofstocksAandBare_____and_____,respectively. A) %;% B) %;% C) %;% D) %;% E) noneoftheaboveAnswer:DDifficulty:Moderate Rationale:sA=[(10%-%)2+(13%-%)2+(12%-%)2+(14%-%)2+(15%-%)2]1/2=%;sB=[(8%-%)2+(7%-%)2+(6%-%)2+(9%-%)2+(8%-%)2=%. 14. ThecoefficientofcorrelationbetweenAandBis A) . B) . C) D) . E) noneoftheabove.Answer:ADifficulty:Difficult Rationale:covA,B=(10%-%)(8%-%)+(13%-%)(7%-%)+(12%-%)(6%-%)+(14%-%)(9%-%)+(15%-%)(8%-%)=;rA,B=[]=.

15. Ifyouinvest40%ofyourmoneyinAand60%inB,whatwouldbeyourportfolio'sexpectedrateofreturnandstandarddeviation A) %;3% B) %;% C) 11%;% D) 11%;3% E) noneoftheaboveAnswer:BDifficulty:Difficult Rationale:E(RP)=%)+%)=%;sP=[22+22+2]1/2=%. 16. LetGbetheglobalminimumvarianceportfolio.TheweightsofAandBinGare__________and__________,respectively. A) ; B) ; C) ; D) ; E) ;Answer:EDifficulty:Difficult Rationale:wA=[2-]/[2+2-(2)=;wB=1-=thattheabovesolutionassumesthesolutionsobtainedinquestion13and14. 17. Theexpectedrateofreturnandstandarddeviationoftheglobalminimumvarianceportfolio,G,are__________and__________,respectively. A) %;% B) %;% C) %;% D) %;% E) noneoftheaboveAnswer:DDifficulty:Moderate Rationale:E(RG)=%)+%)=%.9%;sG=[22+22+(2)]1/2=%.

18. Whichofthefollowingportfolio(s)is(are)ontheefficientfrontier A) Theportfoliowith20percentinAand80percentinB. B) Theportfoliowith15percentinAand85percentinB. C) Theportfoliowith26percentinAand74percentinB. D) Theportfoliowith10percentinAand90percentinB. E) AandBarebothontheefficientfrontier.Answer:CDifficulty:Difficult Rationale:ThePortfolio'sE(Rp),sp,Reward/volatilityratiosare20A/80B:%,%,;15A/85B:%,%,;26A/74B:%,%,;10A/90B:%,%,.Theportfoliowith26%inAand74%inBdominatesalloftheotherportfoliosbythemean-variancecriterion.Usethefollowingtoanswerquestions19-21:ConsidertwoperfectlynegativelycorrelatedriskysecuritiesAandB.Ahasanexpectedrateofreturnof10%andastandarddeviationof16%.Bhasanexpectedrateofreturnof8%andastandarddeviationof12%. 19. TheweightsofAandBintheglobalminimumvarianceportfolioare_____and_____,respectively. A) ; B) ; C) ; D) ; E) ;Answer:DDifficulty:Moderate Rationale:wA=12/(16+12)=;wB=1-=. 20. Therisk-freeportfoliothatcanbeformedwiththetwosecuritieswillearn_____rateofreturn. A) % B) % C) % D) % E) noneoftheaboveAnswer:CDifficulty:Difficult Rationale:E(RP)=(10%)+(8%)=%.

21. Whichofthefollowingportfolio(s)is(are)mostefficient A) 45percentinAand55percentinB. B) 65percentinAand35percentinB. C) 35percentinAand65percentinB. D) AandBarebothefficient. E) AandCarebothefficient.Answer:DDifficulty:Difficult Rationale:ThePortfolioE(Rp),sp,andReward/volatilityratiosare45A/55B:%,%,;65A/35B:%,%,;35A/65B:%,%,.BothAandBareefficientaccordingtothemean-variancecriterion.AhasamuchhigherReward/volatilityratio. 22. AninvestorwhowishestoformaportfoliothatliestotherightoftheoptimalriskyportfolioontheCapitalAllocationLinemust: A) lendsomeofhermoneyattherisk-freerateandinvesttheremainderintheoptimalriskyportfolio. B) borrowsomemoneyattherisk-freerateandinvestintheoptimalriskyportfolio. C) investonlyinriskysecurities. D) suchaportfoliocannotbeformed. E) BandCAnswer:EDifficulty:Moderate Rationale:TheonlywaythataninvestorcancreateportfoliostotherightoftheCapitalAllocationLineistocreateaborrowingportfolio(buystocksonmargin).Inthiscase,theinvestorwillnotholdanyoftherisk-freesecurity,butwillholdonlyriskysecurities.

23. WhichoneofthefollowingportfolioscannotlieontheefficientfrontierasdescribedbyMarkowitz A) OnlyportfolioWcannotlieontheefficientfrontier. B) OnlyportfolioXcannotlieontheefficientfrontier. C) OnlyportfolioYcannotlieontheefficientfrontier. D) OnlyportfolioZcannotlieontheefficientfrontier. E) Cannottellfromtheinformationgiven.Answer:ADifficulty:Moderate Rationale:Whenplottingtheaboveportfolios,onlyWliesbelowtheefficientfrontierasdescribedbyMarkowitz.IthasahigherstandarddeviationthanZwithalowerexpectedreturn. 24. WhichoneofthefollowingportfolioscannotlieontheefficientfrontierasdescribedbyMarkowitz A) OnlyportfolioAcannotlieontheefficientfrontier. B) OnlyportfolioBcannotlieontheefficientfrontier. C) OnlyportfolioCcannotlieontheefficientfrontier. D) OnlyportfolioDcannotlieontheefficientfrontier. E) Cannottellfromtheinformationgiven.Answer:DDifficulty:Moderate Rationale:Whenplottingtheaboveportfolios,onlyWliesbelowtheefficientfrontierasdescribedbyMarkowitz.IthasahigherstandarddeviationthanZwithalowerexpectedreturn.

25. PortfoliotheoryasdescribedbyMarkowitzismostconcernedwith: A) theeliminationofsystematicrisk. B) theeffectofdiversificationonportfoliorisk. C) theidentificationofunsystematicrisk. D) activeportfoliomanagementtoenhancereturns. E) noneoftheabove.Answer:BDifficulty:Moderate Rationale:Markowitzwasconcernedwithreducingportfolioriskbycombiningriskysecuritieswithdifferingreturnpatterns. 26. ThemeasureofriskinaMarkowitzefficientfrontieris: A) specificrisk. B) standarddeviationofreturns. C) reinvestmentrisk. D) beta. E) noneoftheabove.Answer:BDifficulty:Moderate Rationale:Markowitzwasinterestedineliminatingdiversifiablerisk(andthuslesseningtotalrisk)andthuswasinterestedindecreasingthestandarddeviationofthereturnsoftheportfolio. 27. Astatisticthatmeasureshowthereturnsoftworiskyassetsmovetogetheris: A) variance. B) standarddeviation. C) covariance. D) correlation. E) CandD.Answer:EDifficulty:Moderate Rationale:Covariancemeasureswhethersecurityreturnsmovetogetherorinopposition;however,onlythesign,notthemagnitude,ofcovariancemaybeinterpreted.Correlation,whichiscovariancestandardizedbytheproductofthestandarddeviationsofthetwosecurities,mayassumevaluesonlybetween+1and-1;thus,boththesignandthemagnitudemaybeinterpretedregardingthemovementofonesecurity'sreturnrelativetothatofanothersecurity.

28. Theunsystematicriskofaspecificsecurity A) islikelytobehigherinanincreasingmarket. B) resultsfromfactorsuniquetothefirm. C) dependsonmarketvolatility. D) cannotbediversifiedaway. E) noneoftheabove.Answer:BDifficulty:Moderate Rationale:Unsystematic(ordiversifiableorfirm-specific)riskreferstofactorsuniquetothefirm.Suchriskmaybediversifiedaway;however,marketriskwillremain. 29. Whichstatementaboutportfoliodiversificationiscorrect A) Properdiversificationcanreduceoreliminatesystematicrisk. B) Therisk-reducingbenefitsofdiversificationdonotoccurmeaningfullyuntilatleast50-60individualsecuritieshavebeenpurchased. C) Becausediversificationreducesaportfolio'stotalrisk,itnecessarilyreducestheportfolio'sexpectedreturn. D) Typically,asmoresecuritiesareaddedtoaportfolio,totalriskwouldbeexpectedtodecreaseatadecreasingrate. E) Noneoftheabovestatementsiscorrect.Answer:DDifficulty:Moderate Rationale:Diversificationcaneliminateonlynonsystematicrisk;relativelyfewsecuritiesarerequiredtoreducethisrisk,thusdiminishingreturnsresultquickly.Diversificationdoesnotnecessarilyreducereturns. 30. Theindividualinvestor'soptimalportfolioisdesignatedby: A) Thepointoftangencywiththeindifferencecurveandthecapitalallocationline. B) Thepointofhighestrewardtovariabilityratiointheopportunityset. C) Thepointoftangencywiththeopportunitysetandthecapitalallocationline. D) Thepointofthehighestrewardtovariabilityratiointheindifferencecurve. E) Noneoftheabove.Answer:ADifficulty:Moderate Rationale:Theindifferencecurverepresentswhatisacceptabletotheinvestor;thecapitalallocationlinerepresentswhatisavailableinthemarket.Thepointoftangencyrepresentswheretheinvestorcanobtainthegreatestutilityfromwhatisavailable.

31. Foratwo-stockportfolio,whatwouldbethepreferredcorrelationcoefficientbetweenthetwostocks A) +. B) +. C) . D) . E) noneoftheabove.Answer:DDifficulty:Moderate Rationale:Thecorrelationcoefficientofprovidesthegreatestdiversificationbenefits. 32. Inatwo-securityminimumvarianceportfoliowherethecorrelationbetweensecuritiesisgreaterthan A) thesecuritywiththehigherstandarddeviationwillbeweightedmoreheavily. B) thesecuritywiththehigherstandarddeviationwillbeweightedlessheavily. C) thetwosecuritieswillbeequallyweighted. D) theriskwillbezero. E) thereturnwillbezero.Answer:BDifficulty:Difficult Rationale:Thesecuritywiththehigherstandarddeviationwillbeweightedlessheavilytoproduceminimumvariance.Thereturnwillnotbezero;theriskwillnotbezerounlessthecorrelationcoefficientis-1. 33. Whichofthefollowingisnotasourceofsystematicrisk A) thebusinesscycle. B) interestrates. C) personnelchanges D) theinflationrate. E) exchangerates.Answer:CDifficulty:Easy Rationale:Personnelchangesareafirm-specificeventthatisacomponentofnon-systematicrisk.Theothersareallsourcesofsystematicrisk.

34. Theglobalminimumvarianceportfolioformedfromtworiskysecuritieswillberisklesswhenthecorrelationcoefficientbetweenthetwosecuritiesis A) B) C) D) E) negativeAnswer:DDifficulty:Moderate Rationale:Theglobalminimumvarianceportfoliowillhaveastandarddeviationofzerowheneverthetwosecuritiesareperfectlynegativelycorrelated. 35. SecurityXhasexpectedreturnof12%andstandarddeviationof20%.SecurityYhasexpectedreturnof15%andstandarddeviationof27%.Ifthetwosecuritieshaveacorrelationcoefficientof,whatistheircovariance A) B) C) D) E) Answer:ADifficulty:Moderate Rationale:Cov(rX,rY)=(.7)(.20)(.27)=.0378 36. Whentworiskysecuritiesthatarepositivelycorrelatedbutnotperfectlycorrelatedareheldinaportfolio, A) theportfoliostandarddeviationwillbegreaterthantheweightedaverageoftheindividualsecuritystandarddeviations. B) theportfoliostandarddeviationwillbelessthantheweightedaverageoftheindividualsecuritystandarddeviations. C) theportfoliostandarddeviationwillbeequaltotheweightedaverageoftheindividualsecuritystandarddeviations. D) theportfoliostandarddeviationwillalwaysbeequaltothesecurities'covariance. E) noneoftheaboveistrue.Answer:BDifficulty:Moderate Rationale:Whenevertwosecuritiesarelessthanperfectlypositivelycorrelated,thestandarddeviationoftheportfolioofthetwoassetswillbelessthantheweightedaverageofthetwosecurities'standarddeviations.Thereissomebenefittodiversificationinthiscase.

37. Thelinerepresentingallcombinationsofportfolioexpectedreturnsandstandarddeviationsthatcanbeconstructedfromtwoavailableassetsiscalledthe A) risk/rewardtradeoffline B) CapitalAllocationLine C) efficientfrontier D) portfolioopportunityset E) SecurityMarketLineAnswer:DDifficulty:Easy Rationale:Theportfolioopportunitysetisthelinedescribingallcombinationsofexpectedreturnsandstandarddeviationsthatcanbeachievedbyaportfolioofriskyassets. 38. Givenanoptimalriskyportfoliowithexpectedreturnof14%andstandarddeviationof22%andariskfreerateof6%,whatistheslopeofthebestfeasibleCAL A) B) C) D) E) Answer:EDifficulty:Moderate Rationale:Slope=(14-6)/22=.3636 39. Theriskthatcanbediversifiedawayinaportfolioisreferredtoas___________. diversifiableriskuniquerisksystematicriskfirm-specificrisk A) I,III,andIV B) II,III,andIV C) IIIandIV D) I,II,andIV E) I,II,III,andIVAnswer:DDifficulty:Moderate Rationale:Allofthesetermsareusedinterchangeablytorefertotheriskthatcanberemovedfromaportfoliothroughdiversification.

40. Asthenumberofsecuritiesinaportfolioisincreased,whathappenstotheaverageportfoliostandarddeviation A) Itincreasesatanincreasingrate. B) Itincreasesatadecreasingrate. C) Itdecreasesatanincreasingrate. D) Itdecreasesatadecreasingrate. E) Itfirstdecreases,thenstartstoincreaseasmoresecuritiesareadded.Answer:DDifficulty:Moderate Rationale:Statman'sstudyshowedthattheriskoftheportfoliowoulddecreaseasrandomstockswereadded.Atfirsttheriskdecreasesquickly,butthentherateofdecreaseslowssubstantially,asshowninFigure.Theminimumportfolioriskinthestudywas%. 41. Inwords,thecovarianceconsiderstheprobabilityofeachscenariohappeningandtheinteractionbetween A) securities'returnsrelativetotheirvariances. B) securities'returnsrelativetotheirmeanreturns. C) securities'returnsrelativetoothersecurities'returns. D) thelevelofreturnasecurityhasinthatscenarioandtheoverallportfolioreturn. E) thevarianceofthesecurity'sreturninthatscenarioandtheoverallportfoliovariance.Answer:BDifficulty:Difficult Rationale:Aswritteninequation,thecovarianceofthereturnsbetweentwosecuritiesisthesumoverallscenariosoftheproductofthreethings.Thefirstitemistheprobabilitythatthescenariowillhappen.Thesecondandthirdtermsrepresentthedeviationsofthesecurities'returnsinthatscenariofromtheirownexpectedreturns. 42. Thestandarddeviationofatwo-assetportfolioisalinearfunctionoftheassets'weightswhen A) theassetshaveacorrelationcoefficientlessthanzero. B) theassetshaveacorrelationcoefficientequaltozero. C) theassetshaveacorrelationcoefficientgreaterthanzero. D) theassetshaveacorrelationcoefficientequaltoone. E) theassetshaveacorrelationcoefficientlessthanone.Answer:DDifficulty:Moderate Rationale:Whenthereisaperfectpositivecorrelation(oraperfectnegativecorrelation),theequationfortheportfoliovariancesimplifiestoaperfectsquare.Theresultisthattheportfolio'sstandarddeviationislinearrelativetotheassets'weightsintheportfolio.

43. Atwo-assetportfoliowithastandarddeviationofzerocanbeformedwhen A) theassetshaveacorrelationcoefficientlessthanzero. B) theassetshaveacorrelationcoefficientequaltozero. C) theassetshaveacorrelationcoefficientgreaterthanzero. D) theassetshaveacorrelationcoefficientequaltoone. E) theassetshaveacorrelationcoefficientequaltonegativeone.Answer:EDifficulty:Moderate Rationale:Whenthereisaperfectnegativecorrelation,theequationfortheportfoliovariancesimplifiestoaperfectsquare.Theresultisthattheportfolio’sstandarddeviationequals|wAσA–wBσB|,whichcanbesetequaltozero.ThesolutionwA=σB/(σA+σB)andwB=1–wAwillyieldazero-standarddeviationportfolio. 44. Whenborrowingandlendingatarisk-freerateareallowed,whichCapitalAllocationLine(CAL)shouldtheinvestorchoosetocombinewiththeefficientfrontier withthehighestreward-to-variabilityratio.thatwillmaximizehisutility.withthesteepestslope.withthelowestslope. A) IandIII B) IandIV C) IIandIV D) Ionly E) I,II,andIIIAnswer:EDifficulty:Difficult Rationale:TheoptimalCAListheonethatistangenttotheefficientfrontier.ThisCALoffersthehighestreward-to-variabilityratio,whichistheslopeoftheCAL.Itwillalsoallowtheinvestortoreachhishighestfeasiblelevelofutility. 45. WhichExceltoolcanbeusedtofindthepointsalonganefficientfrontier A) Regression B) Solver C) Scenarios D) GoalSeek E) DataAnalysisAnswer:BDifficulty:Moderate Rationale:Evenifthestudentisn'tfamiliarwithExcel'sSolvertool,heshouldrecognizeitfromthediscussioninthetext.

46. Theseparationpropertyreferstotheconclusionthat A) thedeterminationofthebestriskyportfolioisobjectiveandthechoiceofthebestcompleteportfolioissubjective. B) thechoiceofthebestcompleteportfolioisobjectiveandthedeterminationofthebestriskyportfolioisobjective. C) thechoiceofinputstobeusedtodeterminetheefficientfrontierisobjectiveandthechoiceofthebestCALissubjective. D) thedeterminationofthebestCALisobjectiveandthechoiceoftheinputstobeusedtodeterminetheefficientfrontierissubjective. E) investorsareseparatebeingsandwillthereforehavedifferentpreferencesregardingtherisk-returntradeoff.Answer:ADifficulty:Difficult Rationale:Thedeterminationoftheoptimalriskyportfolioispurelytechnicalandcanbedonebyamanager.Thecompleteportfolio,whichconsistsoftheoptimalriskyportfolioandtherisk-freeasset,mustbechosenbyeachinvestorbasedonpreferences.Usethefollowingtoanswerquestions47-50:ConsiderthefollowingprobabilitydistributionforstocksAandB: 47. TheexpectedratesofreturnofstocksAandBare_____and_____,respectively. A) %;9%. B) 13%;% C) %;% D) %;% E) noneoftheaboveAnswer:BDifficulty:Easy Rationale:E(RA)=(8%)+(13%)+(12%)+(14%)+(16%)=13%;E(RB)=(8%)+(7%)+(6%)+(9%)+(11%)=%.

48. ThestandarddeviationsofstocksAandBare_____and_____,respectively. A) %;% B) %;% C) %;% D) %;% E) noneoftheaboveAnswer:BDifficulty:Moderate Rationale:sA=[(8%-13%)2+(13%-13%)2+(12%-13%)2+(14%-13%)2+(16%-13%)2]1/2=%;sB=[(8%-%)2+(7%-%)2+(6%-%)2+(9%-%)2+(11%-%)2]1/2=%. 49. ThecoefficientofcorrelationbetweenAandBis A) . B) . C) . D) . E) noneoftheabove.Answer:CDifficulty:Difficult Rationale:covA,B=(8%-13%)(8%-%)+(13%-13%)(7%-%)+(12%-13%)(6%-%)+(14%-13%)(9%-%)+(16%-13%)(11%-%)=;rA,B=[]=. 50. Ifyouinvest35%ofyourmoneyinAand65%inB,whatwouldbeyourportfolio'sexpectedrateofreturnandstandarddeviation A) %;3% B) %;% C) 10%;% D) 10%;3% E) noneoftheaboveAnswer:CDifficulty:Difficult Rationale:E(RP)=(13%)+%)=%;sP=[2%)2+22+2]1/2=%.Usethefollowingtoanswerquestions51-52:ConsidertwoperfectlynegativelycorrelatedriskysecuritiesAandB.Ahasanexpectedrateofreturnof12%andastandarddeviationof17%.Bhasanexpectedrateofreturnof9%andastandarddeviationof14%.

51. TheweightsofAandBintheglobalminimumvarianceportfolioare_____and_____,respectively. A) ; B) ; C) ; D) ; E) ;Answer:DDifficulty:Moderate Rationale:wA=14/(17+14)=;wB=1-=. 52. Therisk-freeportfoliothatcanbeformedwiththetwosecuritieswillearn_____rateofreturn. A) % B) % C) % D) % E) noneoftheaboveAnswer:BDifficulty:Difficult Rationale:E(RP)=(12%)+(9%)=%. 53. SecurityXhasexpectedreturnof14%andstandarddeviationof22%.SecurityYhasexpectedreturnof16%andstandarddeviationof28%.Ifthetwosecuritieshaveacorrelationcoefficientof,whatistheircovariance A) B) C) D)