This preview shows pages 1–4. Sign up to view the full content.
ch6(sample)
1. A probability distribution for HPRs lets us derive measurements for the ______ of the investment.
A. risk
B. reward
C. both a and b above
D. none of the above
2. The complete portfolio refers to the dollar investment in __________.
A. the riskfree asset
B. the risky portfolio
C. the total of both a and b
D. the difference between a and b
3. The reward/variability ratio is given by __________.
A. the slope of the capital allocation line
B. the second derivative of the capital allocation line
C. the point at which the second derivative of the investor's indifference curve reaches zero
D. none of the above
4. The capital allocation line is also the __________.
A. investment opportunity set formed with a risky asset and a riskfree 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
5. __________ is a true statement.
A. Riskaverse investors reject investments that are fair games
B. Riskneutral investors judge risky investments only by their expected returns
C. both a and b
D. neither a nor b
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document 6. A Treasury bill pays a 6% rate of return. A risk averse investor __________ invest in a risky portfolio that
pays 12% with a probability of 40% or 2% with a probability of 60% because __________.
A. might; she is rewarded a risk premium
B. would not; because she is not rewarded any risk premium
C. would not; because the risk premium is small
D. cannot be determined
7. Rational (i.e., risk averse) Investors wanting to reduce the risk of their portfolio should _____.
A. put fewer risky assets in their risky portfolio
B. shift wealth from the risky portfolio to the riskfree asset
C. shift wealth into less risky assets in the risky portfolio
D. none of the above
8. Consider a treasury bill with a rate of return of 5% and the following risky securities:
Security A: E(r) = .15; variance = .0400
Security B: E(r) = .10; variance = .0225
Security C: E(r) = .12; variance = .1000
Security D: E(r) = .13; variance = .0625
The investor must develop a complete portfolio by combining the riskfree asset with one of the securities
mentioned above. The security the investor would choose as part of his complete portfolio would be
__________.
A. security A
B. security B
C. security C
D. security D
9. An investor invests 40% of his wealth in a risky asset with an expected rate of return of 15% and a variance
of 4% and 60% in a treasury bill that pays 6%. Her portfolio's expected rate of return and standard deviation are
__________ and __________ respectively.
A. 8.0%, 12%
B. 9.6%, 8%
C. 9.6%, 10%
D. 11.4%, 12%
10. Consider the following two investment alternatives. First, a risky portfolio that pays 15% rate of return with
a probability of 60% or 5% with a probability of 40%. Second, a treasury bill that pays 6%. The risk premium
on the risky investment is __________.
A. 1%
This preview has intentionally blurred sections. Sign up to view the full version.
View Full Document
This is the end of the preview. Sign up
to
access the rest of the document.
This note was uploaded on 04/13/2010 for the course FINANCE 414 taught by Professor Finance during the Spring '10 term at Abraham Baldwin Agricultural College.
 Spring '10
 Finance
 Finance

Click to edit the document details