ch08 - Chapter 8 PORTFOLIO SELECTION Multiple Choice...

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Chapter 8 PORTFOLIO SELECTION Multiple Choice Questions Building a Portfolio Using Markowitz Principles 1. According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on: a. expected return. b. risk. c. expected return and risk. d. transactions costs. (c, easy) 2. Under the Markowitz model, investors: a. are assumed to be risk-seekers. b. are not allowed to use leverage. c. are assumed to be institutional investors. d. all of the above. (b, moderate) 3. Which of the following is not one of the assumptions of portfolio theory? a. Liquidity of positions. b. Investor preferences are based only on expected return and risk. c. Low transactions costs. d. A single investment period. (d, moderate) 4. The Markowitz model assumes most investors are: a. risk averse. b. risk neutral. c. risk seekers. d. risk moderators. (a, easy) Chapter Eight Portfolio Selection 94
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5. An indifference curve shows: a. the one most desirable portfolio for a particular investor. b. all combinations of portfolios that are equally desirable to a particular investor. c. all combinations of portfolios that are equally desirable to all investors. d. the one most desirable portfolio for all investors. (b, difficult) 6. Which of the following statements regarding indifference curves is not true? a. Investors have a finite number of indifference curves. b. The greater the slope of the indifference curve, the greater the risk aversion of investors. c. The indifference curves for all risk-averse investors will be upward sloping. d. Indifference curves cannot intersect. (a, difficult) 7. The optimal portfolio for a risk-averse investor: a. cannot be determined. b. occurs at the point of tangency between the highest indifference curve and the highest expected return. c. occurs at the point of tangency between the highest indifference curve and the efficient set of portfolios. d. occurs at the point of tangency between the highest expected return and lowest risk efficient portfolios. (c, difficult) 8. Indifference curves reflect -------------- while the efficient set of portfolios represent ---------------. a. portfolio possibilities; investor preferences. a. investor preferences; portfolio possibilities. b. portfolio return; investor risk. c. investor preferences; portfolio return. (b, moderate) Chapter Eight Portfolio Selection 95
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9. According to Markowitz, an efficient portfolio is one that has the a. largest expected return for the smallest level of risk. b. largest expected return and zero risk. c. largest expected return for a given level of risk. d. smallest level of risk. (c, moderate) 10. Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by a. aggressive investors.
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This note was uploaded on 08/29/2009 for the course BUS Invt taught by Professor Yost during the Spring '09 term at W. Florida.

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ch08 - Chapter 8 PORTFOLIO SELECTION Multiple Choice...

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