Chapter 8 - Study Guide - Chapter 8 PORTFOLIO SELECTION...

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Chapter 8 PORTFOLIO SELECTION Multiple Choice Questions 1. According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on: a. expected return. b. risk. c. expected return and risk. d. transactions costs. (c) 2. Under the Markowitz model, investors: a. are assumed to be risk-seekers. b. are not allowed to use leverage. c. are assumed to be institutional investors. d. all of the above. (b) 3. Which of the following is not one of the assumptions of portfolio theory? a. Liquidity of positions. b. Investor preferences are based only on expected return and risk. c. Low transactions costs. d. A single investment period. (c) 4. The Markowitz model assumes most investors are: a. risk averse. b. risk neutral. c. risk seekers. d. risk moderators. (a) Chapter Eight Portfolio Selection 94
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5. The optimal portfolio for a risk-averse investor: a. cannot be determined. b. occurs at the point of tangency between the highest indifference curve and the highest expected return. c. occurs at the point of tangency between the highest indifference curve and the efficient set of portfolios. d. occurs at the point of tangency between the highest expected return and lowest risk efficient portfolios. (c) 6. According to Markowitz, an efficient portfolio is one that has the a. largest expected return for the smallest level of risk. b. largest expected return and zero risk. c. largest expected return for a given level of risk. d. smallest level of risk. (c) 7. Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by a. aggressive investors. b. conservative investors. c. risk-averse investors. d. defensive investors. (a) 8. A portfolio which lies below the efficient frontier is described as a. optimal. b.
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This note was uploaded on 06/02/2011 for the course FINA 3331 taught by Professor Staff during the Spring '08 term at Texas A&M University, Corpus Christi.

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Chapter 8 - Study Guide - Chapter 8 PORTFOLIO SELECTION...

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