MID TERM SOLN 2011(1) - University of Toronto Rotman...

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University of Toronto & Rotman Commerce RSM 330 Midterm Exam SOLUTIONS October 27, 2011 Duration: 1 hour 30 minutes Please do not open this exam paper until you are instructed to do so • This is a closed book exam.. A non-programmable calculator is allowed. The last page of this exam has formulas that may be useful Answer multiple choice questions in pencil on the Scantron sheet provided. Please put your student number and name on your Scantron sheet and on this exam paper before you start. For the short answer questions, show the main points used to obtain your answer. Keep your answers brief and to the point. • Write clearly and legibly. You may not get the marks you deserve if we cannot read your handwriting. • Points allotted to each question are indicated. There are a total of 100 points. There are a total of 9 pages (including this cover page). Please remain in your seat during the last 15 minutes of the exam so you don’t disturb others Your Full Name: ____________________________________ Student ID Number: _________________________________
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Multiple Choice Questions: (Total of ….points). Please answer in pencil on the Scantron sheet. Each of Questions 1 through 20 is worth 2.5 marks and has only one correct answer. 1. Which one of the following statements is not correct about the application of mean-variance portfolio theory to asset allocation? A. It is very difficult to forecast the expected returns on assets. This is a serious issue in asset allocation. B. Conventional mean variance analysis does not consider that coefficients among many asset classes often rise in a bear market. C. Commodities have low return but high standard deviation. Consequently, we expect portfolios on the efficient frontier to have a very low weight in commodities, relative to other asset classes. D. The optimal allocation computed from the mean-variance portfolio theory often involves large short position if leverage is not constrained. E. In strategic asset allocation, one constructs the long-term policy portfolio, which may explain up to 90% of the fund’s long term performance. 2. Which of the following orders is most useful to short sellers who want to limit their potential losses? 3. Which of the following indices is (are) market-value weighted? I) S&P/TSX Composite Index. II) S&P 500 III) The Dow Jones Industrial Average.
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