Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
Multiple Choice Questions 1. The Capital Allocation Line can be described as the A) investment opportunity set formed with a risky asset and a risk-free asset. B) investment oppo
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
36.What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.11? A) 53.8% and 46.
Chapter 6 Common Stock Valuation
1. Which one of the following terms is used to identify the evaluation method
that determines the value
of a stock by reviewing a firm's financial statement in conjunction with other
financial and economic
information?
A.
Chapter 7 Stock Price Behavior and Market Efficiency
1. Which one of the following states that investors cannot consistently earn
positive excess returns?
A. market return hypothesis
B. current market hypothesis
C. efficient market hypothesis
D. risk-retu
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Investments 320
Dr. Ahmed Y. Dashti
Interactive Qustions
Chapter 6
6-1. Due to its simplicity, the constant perpetual growth model can be usefully applied to
any company.
A) True
B) False
6-2. The substantive growth rate refers to dividend growth that
Chapter 13 Performance Evaluation and Risk Management
1. Which one of the following assesses the ability of a money manager to
balance high returns with an
acceptable level of risk?
A. probability analysis
B. raw return ratio
C. risk assessment
D. perform
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
4.An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent. His
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
41.Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor. Answer: The investor may combine a risk-
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
Short Answer Questions 39. Discuss the differences between the asset allocation decision and the security selection decision. Answer: The asset allocation decision involves the c
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
33.What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.08? A) 85% and 15% B
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
31.An investor invests 40 percent of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of 0.10 and 60 percent in a T-bill that pays 4 percent. Hi
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
29.To build an indifference curve we can first find the utility of a portfolio with 100% in the risk-free asset, then A) find the utility of a portfolio with 0% in the risk-free
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
26. What is the standard deviation of Bo's complete portfolio? A) 7.20% B) 5.40% C) 6.92% D) 4.98% E) 5.76% Answer: E Difficulty: Easy Rationale: Std. Dev. of C = .8*7.20% = 5.76
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
24. When wealth is shifted from the risky portfolio to the risk-free asset, what happens to the relative proportions of the various risky assets within the risky portfolio? A) Th
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
21. Treasury bills are commonly viewed as risk-free assets because A) their short-term nature makes their values insensitive to interest rate fluctuations. B) the inflation uncer
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
18. Passive investing A) may be accomplished by investing in index mutual funds. B) involves considerable security selection. C) involves considerable transaction costs. D) A and
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
15. The change from a straight to a kinked capital allocation line is a result of: A) reward-to-volatility ratio increasing. B) borrowing rate exceeding lending rate. C) an inves
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
12. What would be the dollar values of your positions in X and Y, respectively, if you decide to hold 40% percent of your money in the risky portfolio and 60% in T-bills? A) $240
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
Use the following to answer questions 10-13: You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with 2 risky securities, X and
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset
7.A portfolio that has an expected outcome of $115 is formed by A) investing $100 in the risky asset. B) investing $80 in the risky asset and $20 in the risk-free asset. C) borro