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Unformatted text preview: iven riskless borrowing and lending, the investor will choose the portfolio of risky assets which: [ ] has a standard deviation of zero. [ ] has the highest possible rate of return. [ ] lies at the maximum point of the capital market line. [ ] lies on the capital market line and exceeds the returns produced by the efficient set of risky assets. v [ ] lies on the capital market line and belongs to the efficient set of risky assets. 42) Which one of the following is true about the market portfolio and the security market line (SML)? v [ ] The market portfolio plots at a point on the SML at a return equal to the risk-free rate plus the market risk premium. [ ] The market portfolio must plot below the SML. [ ] The market portfolio plots at the intercept point on the SML. [ ] The market portfolio plots as the most risky of all portfolios located on the SML. [ ] The market portfolio has a higher risk premium per unit of risk than any other security that plots on the SML. 43) The backward-bending section of a feasible set of returns for a portfolio consisting of two securities indicates that: [ ] the rate of return decreases as the level of risk decreases. [ ] combining two securities into one portfolio initially causes the portfolio rate of return to be less than that of the lower-performing individual security. [ ] the minimum variance portfolio produces the highest feasible rate of return for the portfolio. v [ ] combining two securities into one portfolio initially reduces risk while increasing return. [ ] combining two assets does not make sense unless the weight of the smaller portion of the portfolio is at least 25 percent. 44) A stock has the following expected rates of return. Each state of the economy is equally likely to occur. What is the variance of these returns? Economic state Expected return Boom .17 Normal .12 Recession -.02 [ ] .004802 [ ] .005138 v [ ] .006467 [ ] .007410 [ ] .009700 45) Assume that a portfolio is comprised of 50 stocks with each stock having an equal portfolio weight, a constant variance, and a constant covariance. Given this, the unique risk of the portfolio is defined as: [ ] var - 1 [ ] 1 - var v [ ] var - cov [ ] cov - var [ ] 1- [var - cov] 46) Which one of the following statements is true regarding the beta coefficient? [ ] Beta is a measure of unsystematic risk. [ ] A beta greater than one represents less systematic risk than the market. v [ ] Generally speaking, the higher the beta, the higher the expected return. [ ] A beta of one indicates an asset is totally risk-free. [ ] The risk premium of a security will increase if the beta of that asset decreases. 47) You hold three stocks in your portfolio: Stock A, Stock B, and Stock C. The portfolio beta is 1.50. Stock A constitutes 20 percent of the dollar value of your holdings and has a beta of 1.0. I...
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This note was uploaded on 06/15/2008 for the course ACC 501 504 taught by Professor Na during the Spring '08 term at University of Texas at Austin.
- Spring '08