15_Diversification II_sol

15_Diversification II_sol - BM 410 HW#15 Multiple Choice 1...

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BM 410 HW #15 Multiple Choice 1. Systematic risk is the component of a stock’s variance that A) Cannot be diversified away in the market portfolio B) Associated with firm-specific factors C) Depends only on the stock’s correlation with the market portfolio D) Depends only on the covariance of the stock with the market portfolio 2. Which of the following is not true regarding the diagram below? A) Point C represents a portfolio with a zero weight in the risk free asset. B) Some portfolios on Curve B may have a non-zero weight in the risk-free asset. C) Every portfolio on line A below point C has a positive weight in the risk-free asset. D) No portfolio will lie above line A in the diagram. 3. Assume stock A is part of a portfolio. Let A r be the return of stock A and p r be the return on the portfolio. Which of the following statements is not necessarily true regarding the regression model e br a r p A + + = ? A) Variation in e cannot be explained by variation in the portfolio. B) Variation in e is completely canceled out by variation in the error terms of other stocks. C) 0 ) , ( = ε p r Cov D) a is the risk-free rate 4. “Beating the market” implies that your portfolio has a ________than the market portfolio. A) Higher realized return B) Higher expected return Please do not share these solutions with those that may be taking the class in the future.
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C) Lower volatility D) Higher Sharpe ratio. 5.
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This note was uploaded on 03/17/2011 for the course BUS M 410 taught by Professor Brianboyer during the Fall '10 term at BYU.

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15_Diversification II_sol - BM 410 HW#15 Multiple Choice 1...

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