SME_8e_Ch_07_Section_3 - CHAPTER 7 SECTION 3: RANDOM...

Info iconThis preview shows pages 1–3. Sign up to view the full content.

View Full Document Right Arrow Icon
1 CHAPTER 7 SECTION 3: RANDOM VARIABLES AND DISCRETE PROBABILITY DISTRIBUTIONS MULTIPLE CHOICE 144. The portfolio expected return of two investments: a. will be higher when the covariance is zero. b. will be higher when the covariance is negative. c. will be higher when the covariance is positive. d. does not depend on the covariance. ANS: D PTS: 1 REF: SECTION 7.3 145. The following information regarding a portfolio of two stocks are given: w 1 = .65, w 2 = .35, E ( R 1 ) = .12, and E ( R 2 ) = .14. Which of the following regarding the portfolio expected return, E ( R p ), is correct? a. .260 b. .127 c. .346 d. .374 ANS: B PTS: 1 REF: SECTION 7.3 146. The following information regarding a portfolio of two stocks are given: w 1 = .25, w 2 = .75, E ( R 1 ) = .08, and E ( R 2 ) = .15. Which of the following regarding the portfolio expected return, E ( R p ), is correct? a. .3640 b. .2300 c. .1325 d. .1699 ANS: C PTS: 1 REF: SECTION 7.3 147. Which of the following regarding the mean and variance of a portfolio of two stocks is false? a. E ( R p ) = ( w 1 + w 2 )[ E ( R 1 ) + E ( R 2 )] b. V ( R p ) = w 1 2 V ( R 1 ) + w 2 2 V ( R 2 ) + 2 w 1 w 2 COV( R 1 R 2 ) c. V ( R p ) = w 1 2 σ 1 2 + w 2 2 2 2 + 2 w 1 w 2 ρσ 1 2 d. E ( R p ) = w 1 E ( R 1 ) + w 2 E ( R 2 ) ANS: A PTS: 1 REF: SECTION 7.3
Background image of page 1

Info iconThis preview has intentionally blurred sections. Sign up to view the full version.

View Full DocumentRight Arrow Icon
2 148. Which of the following regarding the mean and variance of a portfolio of K stocks is false? a. E ( R p ) = w i E ( R i ) i = 1 K b. V ( R p ) = w i 2 V ( R i ) + COV ( R i , R j ) j = i + 1 K i = 1 K i = 1 K c. V ( R p ) = w i 2 σ i 2 + w i w j COV ( R i R j ) j = i + 1 K i = 1 K i = 1 K d. None of these choices. ANS: B PTS: 1 REF: SECTION 7.3 TRUE/FALSE 149. The covariance between two investments of a portfolio is equal to the sum of the variances of the investments. ANS: F PTS: 1 REF: SECTION 7.3 150. If the covariance between two investments of a portfolio is zero, the variance of the portfolio will be equal to the sum of the variances of the investments. ANS: T PTS: 1 REF: SECTION 7.3 151. The expected return of a portfolio of two investments will be equal to the sum of the expected returns of the two investments plus twice the covariance between the investments. ANS: F
Background image of page 2
Image of page 3
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 7

SME_8e_Ch_07_Section_3 - CHAPTER 7 SECTION 3: RANDOM...

This preview shows document pages 1 - 3. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online