Bus172B-MidtermExamFall09

Bus172B-MidtermExamFall09 - it i i,\ iu't'i o-J (^...

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The following data apply to Questions l:3(Calculators are not necessary for these questions') \$= u-:r\s^t n oi*t J-A rD^ ue tra *,u Rnn Asset Return Risk A 8o/o r6% B 14% 2?% Aportfolio is composed of 50%A and 50%B 1. If the correlation coefficient between A and B is +1.0, the risk of the portfolio is: 2. If the correlation coefficient between A and B is -1.0, the risk of the portfolio is: S. = {42A so + ft*g - -l l6t. + { lz-7 {L : Bz -+fl ./. : lq.t Op = .s (.ta) * .s('zz) = 11'l- a. 76% b. 17.6% d. 20.6% e. 22% a: 0% c. 6% d. t2% e. 760/o
3. If the correlation coefficient between A and B is -1.0, the return of the portfolio is: a. 8% b. 10% - frrvn d. 12% e. 14% [l.V.,'^- {JA Ro ,-\ ,N' It]rJ.*'\n + uq.Kpg .-:'. J., 8'/ ,+ I \t"t 'f Z_* L ::. I ,/ j .?,/ z- l\ ^ ) (

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{- d Exhibit 1 # (Questions 4-7) Rehrrn/Risk Frontier Z tdx"*r +-^ QI .<)' \" = R;: K r)4
The plot in Exhibit 1 and the following data apply to Questions 4-7. 4. In terms of the Sharpe Ratio, which is the superior asset? (/ c'z -j ) Asset Return Risk X (Small Cap Stocks) 17.4% b 32.7% ',f , Y (Large Cap Stocks) 12.3% z0.r% ,( Z (Treasury Bonds) s.8% e.2% \;;" Risk Fre: Asset 3% B: Composed of 100% Asset Z C: Composed of 80% Asset Z and 2004 Asset Y ,{i --w- 4f .tE- 14 5. The efficient frontier is (in Exhibit l): a. The curve from A to E. b. The curve from B to E -A\ ^. (c. \The curye from C to E \.J i d. The curve from D to E e- The cun'e from A to C 6. Which of the following is false (if any)? a. Point E is composed of 100% asset X. \/ b. Asset Z (Treasury Bonds) is not on the effrcient frontier- c. In proceeding frorn Point B to point C, you increase return and decrease risk. ; d. ln proceeding frorn Point B to Point C you replace 20oh of Treasury bonds with Large Cap Stocks. i e.\rAll of the above are true \---. )

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7. Which of the following is false? a. Point C is the rninimum vari4ped iortfolio. ,/ b. Along the curve from.9to E, it is possible to have a combination of all three assets and Z. \ fti". .rsifraaiion between Large Cap Stocks and Small Cap Stocks is the reason point C is \*, sqpdrior to point B. \ Based on this gaph, your portfoiio should never be composed of 100% Treasury bonds\ AII of the above are true. 8. Which of the following is/are false about the EF (efficient frontier)? *- a. All the points on the efficient frontier are effrcient, that is each point provides the highest X return and the lowest risk. .< b. To calculate the EF requires data on the returns and risks of each asset and correlation coefficients (or covariances) between each pair of assets. -{
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This note was uploaded on 09/08/2010 for the course BUS 172B at San Jose State.

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Bus172B-MidtermExamFall09 - it i i,\ iu't'i o-J (^...

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