FINC314 Potential Final

FINC314 Potential Final - Sample Exam #2 1. Multiple Choice...

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

View Full Document Right Arrow Icon
Sample Exam #2 1. Multiple Choice (28 points) Choose the best answer for each of the following questions. The questions are worth 4 points each. 1. Consider the four risky securities described below. Which of these securities would be the best to combine with a Treasury Bill that pays a risk-free rate of 7.0%? a) Security A : E(R)=10% σ =14.0% b) Security B : E(R)=15% σ =19.0% c) Security C : E(R)=21% σ =19.0% d) Security D : E(R)=18% σ =14.0% 2. Given the two security choices described below, which security would be selected by a risk-averse investor? Security A is a risk-free security with a return equal to 8.0%. Security B is a risky security that pays -4% or +20% with equal probability. a) Security A would be selected by a risk-averse investor b) Security B would be selected by a risk-averse investor c) A risk-averse investor would be indifferent between Security A and Security B d) The answer cannot be determined without knowing the investor’s exact risk- aversion level and utility function. 3. For each individual investor, the optimal combination of a risky security and a risk- free security is determined by: a) The point of minimum variance on the Efficient Frontier. b) The point of tangency between the Capital Allocation Line and the Efficient Frontier. c) The point of tangency between the Efficient Frontier and the investor’s indifference curves. d) The point of tangency between the Capital Allocation Line and the investor’s indifference curves.
Background image of page 1

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

View Full DocumentRight Arrow Icon
4. Other things equal, diversification is most effective when: a) Security returns are uncorrelated. b)
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 / 6

FINC314 Potential Final - Sample Exam #2 1. Multiple Choice...

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