FI 312001 Sample test 2 Spring 2007
1.
Adding additional risky assets will generally move the efficient frontier _____ and to the _______.
A.up, right
B.up, left
C.down, right
D.down, left
2.
Asset A has an expected return of 20% and a standard deviation of 25%. The risk free rate is 10%. What
is the rewardtovariability ratio?
A..40
B..50
C..75
D..80
3.
__________ is a true statement regarding the variance of risky portfolios.
A.The higher the coefficient of correlation between securities, the greater will be the reduction in the
portfolio variance
B.There is a direct relationship between the securities coefficient of correlation and the portfolio
variance
C.The degree to which the portfolio variance is reduced depends on the degree of correlation between
securities
D.none of the above
4.
A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 5% while
stock B has a standard deviation of return of 15%. The correlation coefficient between the returns on A
and B is .5. Stock A comprises 40% of the portfolio while stock B comprises 60% of the portfolio. The
variance of return on the portfolio is __________.
A..0035
B..0085
C..0094
D..0103
1
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The standard deviation of return on investment A is .10 while the standard deviation of return on
investment B is .05. If the covariance of returns on A and B is .0030, the correlation coefficient between
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 Spring '09
 GUAN
 Capital Asset Pricing Model

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