Practice Questions for Midterm I Fall 2018 - Answers.pdf

Practice Questions for Midterm I Fall 2018 - Answers.pdf -...

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Midterm I Review Questions Homework 1, Questions 1-21 Extra questions: 1. The capital allocation line can be described as the A. investment opportunity set formed with a risky asset and a risk-free asset. B. investment opportunity set formed with two risky assets. C. line on which lie all portfolios that offer the same utility to a particular investor. D. line on which lie all portfolios with the same expected rate of return and different standard deviations. The CAL has an intercept equal to the risk-free rate. It is a straight line through the point representing the risk-free asset and the risky portfolio, in expected-return/standard deviation space 2. Which of the following statements regarding the capital allocation line (CAL) is false? A. The CAL shows risk-return combinations. B. The slope of the CAL equals the increase in the expected return of the complete portfolio per unit of additional standard deviation. C. The slope of the CAL is also called the reward-to-volatility ratio. D. The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset. The CAL consists of combinations of a risky asset and a risk-free asset whose slope is the reward-to- volatility ratio; thus, all statements except D are true.
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3. An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.15 and a
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  • Spring '14
  • TuranBali
  • risk-free asset, capital allocation line, risky securities

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