Mid_Term S10 - University of Toronto & Rotman Commerce...

Info iconThis preview shows pages 1–4. Sign up to view the full content.

View Full Document Right Arrow Icon
University of Toronto & Rotman Commerce RSM 330 Midterm Exam S10 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. • Answer multiple choice questions on this exam paper. Circle only the correct answer. For the short answer questions, show the main steps 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 11 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: _________________________________
Background image of page 1

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

View Full DocumentRight Arrow Icon
1. Which statement about portfolio diversification is correct? a) Diversification can reduce or eliminate systematic risk. b) The risk-reducing benefits of diversification do not occur meaningfully until at least 25 to 30 individual securities have been purchased. c) Because diversification reduces a portfolio's total risk, it also reduces the portfolio's expected return. d) Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a decreasing rate. e) None of the above statements is correct. 2. Which of the following statements about hedging is true? a) Hedging is adding securities to an existing portfolio to increase its overall return. b) Hedging is used to increase both the risk and the return of a portfolio. c) Hedging is used to reduce the risk of a portfolio d) Hedging is used to increase portfolio volatility. e) None of the above statements is correct. 3. Which of the investments cannot be on the efficient frontier? Investment E(r) Standard Deviation A 10% 5% B 21% 11% C 18% 23% D 24% 16% a) Investment A. b) Investment B c) Investment C. d) Investment D e) All of these investments can be on the efficient frontier 4. Which of the following statements is incorrect ? (a) A key difference between an index ETF and an index mutual fund is that one can short-sell the ETF but not the mutual fund. (b) Default premium, defined as the difference between yields on junk bonds and Treasury bonds, becomes smaller when investors buy junk bonds and sell Treasury bonds. (c) Market breadth indicators measure the extent to which market movements are reflected in the trading patterns of individual securities.
Background image of page 2
(d) Buying an “Inverse ETF” gives investors the same long term return as shorting the stock (e) Corporate bonds have higher yields than Treasury bonds because corporate bonds have default risk. 5
Background image of page 3

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

View Full DocumentRight Arrow Icon
Image of page 4
This is the end of the preview. Sign up to access the rest of the document.

Page1 / 10

Mid_Term S10 - University of Toronto & Rotman Commerce...

This preview shows document pages 1 - 4. Sign up to view the full document.

View Full Document Right Arrow Icon
Ask a homework question - tutors are online