EXAM3 - EXAM 3 ECONOMICS 448, SPRING 2001 Instructions:...

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EXAM 3 ECONOMICS 448, SPRING 2001 Instructions: Total points on the exam is100. Write your name on the exam script and on the blue book. _____________________________________________________________________________ _ Note: The annuity factor table is appended to the exam script. PART I . Three points to each question. Circle the letter of the choice. 1. The risk of cashflows can be measured by: A) their variance or standard deviation in a single asset context. B) the beta of the investment in a portfolio context. C) their expected return. D) a and b. E) b and c. 2. When a security is added to a portfolio the appropriate return and risk contributions are: A) the expected return of the asset and its standard deviation. B) the most probable return and the beta. C) the expected return and the beta. D) the most probable return and the beta. E) these both can not be measured. 3. Efficient portfolios are portfolios that: A) offer the highest rate of return for the same amount of risk. B) offer the lowest rate of return for the same amount of risk. C) offer the lowest amount of risk for the same amount of return. D) offer the highest amount of risk for the same amount of return. E) both a and c. 4. The measure of beta associates most closely with: A) idiosyncratic risk. B) risk-free return. C) systematic risk. D) unexpected risk. E) unsystematic risk. 5. The combination of the efficient set of portfolios with a riskless lending and borrowing rate results in: A) the capital market line which shows that all investors will only invest in the riskless asset. B) the capital market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. 1
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C) the security market line which shows that all investors will invest in the riskless asset only. D) the security market line which shows that all investors will invest in a combination of the riskless asset and the tangency portfolio. E) none of the above. 6. The diversification effect of a portfolio of two stocks A) increases as the correlation between the stocks declines. B) increases as the correlation between the stocks rises. C) decreases as the correlation between the stocks rises. D)
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This note was uploaded on 12/20/2011 for the course ECON 448 taught by Professor Bejan during the Spring '06 term at Rice.

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EXAM3 - EXAM 3 ECONOMICS 448, SPRING 2001 Instructions:...

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