Many current and also retired Enron Corp. Employees had actually their 401k retirement accounts wiped out as soon as Enron collapsed because ________.

You are watching: Beta is a measure of security responsiveness to _________.

they had to pay substantial fines because that obstruction that justice

their 401k accounts to be held external the company

their 401k account were no well diversified

none of these options


*

Based top top the outcomes in the complying with table, select which of the statements listed below is (are) correct?

I. The covariance of defense A and security B is zero.

II. The correlation coefficient between securities A and C is negative.

The correlation coefficient between securities B and C is positive.

I only

I and also II only

II and also III only

I, II, and III


Asset A has actually an meant return the 15% and also a reward-to-variability ratio of .4. Legacy B has actually an intended return of 20% and a reward-to-variability ratio of .3. A risk-averse investors would choose a portfolio using the risk-free asset and also ______.

asset A

asset B

no risky asset

The answer can not be identified from the data given.


Adding extr risky assets come the investment opportunity collection will typically move the reliable frontier _____ and also to the ______.

up; right

up; left

down; right

down; left


An investor"s degree of threat aversion will recognize his or her ______.

optimal risky portfolio

risk-free rate

optimal mix that the risk-free asset and risky asset

capital assignment line


The ________ is same to the square root of the methodical variance separated by the complete variance.

covariance

correlation coefficient

standard deviation

reward-to-variability ratio


Which the the complying with statistics cannot be negative?

A. CovarianceB. VarianceC. E(r) D. Correlation coefficient


10. Heritage A has actually an supposed return that 20% and a traditional deviation the 25%. The risk-free rate is 10%. What is the reward-to-variability ratio?

A. .40

B. .50

C. .75

D. .80


11. The correlation coefficient in between two assets equates to _________.

their covariance divided by the product of your variances

the product of their variances divided by their covariance

the sum of their meant returns divided by their covariance

their covariance split by the product that their traditional deviations


12. Diversification is most effective when defense returns room _________.

high

negatively correlated

positively correlated

uncorrelated


13. The expected rate of return the a investment portfolio of risky securities is _________.

A. The sum of the securities" covarianceB. The amount of the securities" varianceC. The weighted amount of the securities" meant returnsD. The weighted sum of the securities" variance


14. Beta is a measure up of defense responsiveness to _________.

firm-specific risk

diversifiable risk

market risk

unique risk


15. The threat that can be diversified far is __________.

beta

firm-specific risk

market risk

systematic risk


16. About how numerous securities does it require to diversify almost every one of the distinct risk indigenous a portfolio?

2

6

8

20


17. Take into consideration an investment opportunity set formed through two securities that are perfectly negatively correlated. The global minimum-variance portfolio has a typical deviation that is always _________.

equal come the amount of the securities" traditional deviations

equal come -1

equal to 0

greater than 0


18. Market risk is also called __________ and _________.

systematic risk; diversifiable risk

systematic risk; nondiversifiable risk

unique risk; nondiversifiable risk

unique risk; diversifiable risk


19. Firm-specific hazard is also called __________ and also __________.

systematic risk; diversifiable risk

systematic risk; nondiversifiable risk

unique risk; nondiversifiable risk

unique risk; diversifiable risk


20. Which one of the following stock return statistics fluctuates the most over time?

A. Covariance of returnsB. Variance of returnsC. Mean returnD. Correlation coefficient


21. Harry Markowitz is ideal known for his Nobel Prize-winning occupational on _____________.

strategies for energetic securities trading

techniques offered to identify effective portfolios that risky assets

techniques supplied to measure the systematic risk the securities

techniques offered in valuing securities options


22. Intend that a share portfolio and a shortcut portfolio have a zero correlation. This means that ______.

the returns on the stock and also bond portfolios have tendency to move inversely

the return on the stock and bond portfolios often tend to vary individually of every other

the return on the stock and bond portfolios tend to move together

the covariance that the stock and bond portfolios will certainly be positive


You put fifty percent of her money in a stock portfolio that has actually an meant return that 14% and also a conventional deviation of 24%. You put the rest of your money in a risky bond portfolio that has actually an intended return of 6% and a standard deviation of 12%. The stock and bond portfolios have actually a correlation that .55. The standard deviation the the result portfolio will certainly be ________________.

more 보다 18% but less than 24%

equal come 18%

more 보다 12% but less 보다 18%

equal come 12%


24. ~ above a standard supposed return versus conventional deviation graph, investors will favor portfolios the lie come the _____________ the present investment chance set.

left and also above

left and below

right and also above

right and below


25. The term finish portfolio refers to a investment portfolio consisting of _________________.

the risk-free asset merged with at the very least one risky asset

the industry portfolio an unified with the minimum-variance portfolio

securities from residential markets combined with securities from international markets

common stocks an unified with bonds


26. Rational risk-averse investor will constantly prefer portfolios _____________.

located on the effective frontier to those located on the resources market line

located top top the resources market heat to those located on the efficient frontier

at or close to the minimum-variance suggest on the efficient frontier

that are risk-free come all various other asset choices


27. The optimal risky portfolio deserve to be determined by finding:

I. The minimum-variance point on the efficient frontier

II. The maximum-return point on the efficient frontier and also the minimum-variance allude on the efficient frontier

III. The tangency suggest of the funding market line and also the reliable frontier

IV. The line v the steepest slope that connects the risk-free price to the efficient frontier

I and II only

II and III only

III and also IV only

I and also IV only


28. The _________ reward-to-variability ratio is discovered on the ________ funding market line.

lowest; steepest

highest; flattest

highest; steepest

lowest; flattest


29. A investment portfolio is written of two stocks, A and B. Share A has a traditional deviation of return that 24%, while stock B has a standard deviation of return the 18%. Stock A comprises 60% the the portfolio, while share B comprises 40% the the portfolio. If the variance of return on the investment portfolio is

.0380, the correlation coefficient between the returns on A and also B is _________.

A. .583

B. .225

C. .327

D. .128


30. The conventional deviation the return on invest A is .10, when the traditional deviation that return on investment B is .05. If the covariance of returns on A and B is .0030, the correlation coefficient in between the returns on A and B is _________.

A. .12

B. .36

C. .60

D. .77


31. A portfolio is written of two stocks, A and B. Stock A has actually a traditional deviation that return the 35%, while stock B has a typical deviation the return that 15%. The correlation coefficient between the return on A and B is .45. Share A comprises 40% of the portfolio, while share B comprises 60% the the portfolio. The traditional deviation that the return top top this portfolio is _________.

23%

19.76%

18.45%

17.67%


32. The traditional deviation of return on investment A is .10, when the typical deviation the return on investment B is .04. If the correlation coefficient between the returns on A and B is -.50, the covariance of return on A and also B is _________.

-.0447

-.0020

.0020

.0447


33. Take into consideration two perfectly negatively correlated risky securities, A and B. Security A has actually an expected price of return the 16% and also a conventional deviation the return the 20%. B has an expected price of return that 10% and a standard deviation of return of 30%. The load of defense B in the minimum-variance investment portfolio is _________.

10%

20%

40%

60%


34. An investor can style a risky portfolio based on two stocks, A and also B. Share A has an intended return that 18% and a conventional deviation that return of 20%. Share B has an intended return of 14% and also a conventional deviation of return the 5%. The correlation coefficient between the return of A and B is .50. The risk-free rate of return is 10%. The relationship of the optimal risky investment portfolio that must be invest in stock A is _________.

0%

40%

60%

100%


An investor can design a risky portfolio based on two stocks, A and B. Stock A has actually an expected return that 18% and a typical deviation of return of 20%. Share B has actually an meant return of 14% and also a typical deviation the return that 5%. The correlation coefficient in between the return of A and B is .50. The risk-free rate of return is 10%. The supposed return top top the optimal risky portfolio is _________.

14%

15.6%

16.4%

18%


An investor can design a risky portfolio based on two stocks, A and also B. Stock A has an expected return of 18% and also a standard deviation that return the 20%. Stock B has an intended return that 14% and a traditional deviation of return that 5%. The correlation coefficient between the returns of A and B is .50. The risk-free price of return is 10%. The conventional deviation the return on the optimal risky investment portfolio is _________.

0%

5%

7%

20%


An investor can architecture a risky portfolio based upon two stocks, A and also B. Share A has actually an meant return that 21% and a conventional deviation that return of 39%. Share B has actually an expected return that 14% and a typical deviation the return of 20%. The correlation coefficient in between the return of A and also B is .4. The risk-free price of return is 5%. The ratio of the optimal risky investment portfolio that have to be invested in share B is approximately

_________.

29%

44%

56%

71%


An investor can architecture a risky portfolio based on two stocks, A and also B. Share A has an expected return of 21% and a conventional deviation the return the 39%. Stock B has an meant return that 14% and a traditional deviation that return of 20%. The correlation coefficient in between the returns of A and also B is .4. The risk-free rate of return is 5%. The intended return top top the optimal risky portfolio is around _________. (Hint: find weights first.)

14%

16%

18%

19%


39. An investor can design a risky portfolio based on two stocks, A and B. Share A has an intended return of 21% and also a standard deviation the return of 39%. Stock B has an expected return the 14% and a conventional deviation that return that 20%. The correlation coefficient in between the returns of A and also B is .4. The risk-free price of return is 5%. The typical deviation of returns on the optimal risky portfolio is _________.

25.5%

22.3%

21.4%

D. 20.7%


40. An investor can style a risky portfolio based on two stocks, A and also B. The typical deviation that return on share A is 24%, if the standard deviation on share B is 14%. The correlation coefficient in between the returns on A and B is .35. The intended return on stock A is 25%, while on share B it is 11%. The relationship of the minimum-variance investment portfolio that would be invest in share B is about _________.

45%

67%

85%

92%


41. An investors can architecture a risky portfolio based upon two stocks, A and B. The traditional deviation the return on stock A is 20%, while the standard deviation on stock B is 15%. The correlation coefficient between the returns on A and also B is 0%. The price of return for stocks A and also B is 20 and also 10 respectively. The supposed return ~ above the minimum-variance investment portfolio is about _________.

10%

13.6%

15%

19.41%


42. An investor can design a risky portfolio based upon two stocks, A and B. The conventional deviation that return on stock A is 20%, while the traditional deviation on share B is 15%. The correlation coefficient in between the returns on A and B is 0%. The traditional deviation of return top top the minimum-variance investment portfolio is _________.

0%

6%

12%

17%


43. A measure up of the riskiness of one asset organized in isolation is ____________.

beta

standard deviation

covariance

alpha


44. Semitool Corp. Has actually an expected excess return that 6% for next year. However, for every unanticipated 1% readjust in the market, Semitool"s return responds through a variable of 1.2. Intend it transforms out the the economy and the stock market do much better than intended by 1.5% and Semitool"s commodities experience an ext rapid expansion than anticipated, advertise up the share price by an additional 1%. Based upon this information, what was Semitool"s actual excess return?

7%

8.5%

8.8%

9.25%


45. The component of a stock"s return the is methodical is a function of i beg your pardon of the adhering to variables?

I. Volatility in excess return of the stock market

II. The sensitivity that the stock"s returns to changes in the share market

The variance in the stock"s returns that is unrelated come the as whole stock market

I only

I and also II only

II and III only

I, II, and also III


46. Share A has actually a beta that 1.2, and stock B has actually a beta that 1. The return of share A space ______ sensitive to changes in the industry than room the return of stock B.

20% more

slightly more

20% less

slightly less


47. I m sorry risk have the right to be partially or totally diversified far as additional securities are added to a portfolio?

I. Complete risk

II. Systematic risk

Firm-specific risk

I only

I and also II only

I, II, and III

I and also III


48. Follow to Tobin"s separation property, portfolio choice can be separated into two independent work consisting the __________ and

__________.

A.identifying all investor applied constraints; identifying the set of securities the conform come the investor"s constraints and offer the finest risk-return trade-offsB.identifying the investor"s level of risk aversion; picking securities from industry groups that are continuous with the investor"s hazard profile

C.identifying the optimal risky portfolio; building a complete portfolio from T-bills and also the optimal risky portfolio based on the investor"s level of hazard aversionD.choosing i beg your pardon risky heritage an investor prefers follow to the investor"s risk-aversion level; minimizing the CAL by loan at the risk-free rate


You are creating a scatter plot of overfill returns because that stock A matches the industry index. If the correlation coefficient between stock A and the index is -1, you will find that the points of the scatter diagram ___________ and also the line of finest fit has a ______________.

all fall on the line of best fit; confident slope

all autumn on the line of ideal fit; negative slope

are widely scattered approximately the line; positive slope

are widely scattered about the line; an adverse slope


50. The term excess return describes ______________.

returns earned illegal by way of insider trading

the difference between the rate of return earned and also the risk-free rate

the difference in between the rate of return deserve on a certain security and the rate of return earn on other securities of indistinguishable risk

the section of the return ~ above a protection that represents taxes liability and therefore can not be reinvested


51. You are recalculating the threat of ACE stock in relationship to the sector index, and also you find that the ratio of the organized variance come the complete variance has actually risen. Girlfriend must likewise find that the ____________.

covariance between ACE and also the market has actually fallen

correlation coefficient between ACE and the market has fallen

correlation coefficient between ACE and also the market has risen

unsystematic risk of ACE has actually risen


52. A stock has a correlation through the market of .45. The conventional deviation the the market is 21%, and the typical deviation of the stock is 35%. What is the stock"s beta?

A. 1

B. .75

C. .60

D. .55


53. The worths of beta coefficients that securities are __________.

always positive

always negative

always in between positive 1 and an adverse 1

usually positive yet are not limited in any specific way


54. A security"s beta coefficient will certainly be an adverse if ____________.

its returns room negatively correlated with market-index returns

its returns are positively correlated with market-index returns

its share price has actually historically been very stable

market need for the firm"s shares is really low


55. The sector value weighted-average beta that firms included in the market index will constantly be _____________.

0

between 0 and also 1

1

none of these choices (There is no particular rule concerning the typical beta that firms had in the sector index.)


56. Diversification can reduce or eliminate __________ risk.

all

systematic

nonsystematic

D. Just an insignificant


57. To construct a riskless portfolio using 2 risky stocks, one would need to uncover two stocks with a correlation coefficient of ________.

A. 1

B. .5

0

-1


58. Some diversification benefits deserve to be achieved by combine securities in a investment portfolio as lengthy as the correlation between the securities is

_____________.

1

less 보다 1

between 0 and also 1

less than or equal to 0


59. If an investors does not diversify his portfolio and instead puts all of his money in one stock, the ideal measure of security risk for the investor is the ________.

stock"s standard deviation

variance that the market

stock"s beta

covariance v the market index


60. I m sorry of the following provides the finest example of a systematic-risk event?

A to win by union workers hurts a firm"s quarterly earnings.

Mad Cow an illness in Montana hurts local ranchers and also buyers of beef.

The commonwealth Reserve increases interest prices 50 basis points.

A senior executive at a firm embezzles $10 million and escapes to southern America.


61. Which of the complying with statements is (are) true regarding time diversification?

I. The standard deviation of the average annual rate the return over several years will certainly be smaller than the 1-year standard deviation.

II. Because that a much longer time horizon, suspicion compounds end a greater number of years.

Time diversification walk not mitigate risk.

I only

II only

II and also III only

I, II, and also III


62. You find that the annual Sharpe ratio for stock A returns is equal to 1.8. For a 3-year stop period, the Sharpe proportion would same _______.

1.8

2.48

3.12

5.49


*

*

*

The characteristics line because that this stock is Rstock = ___ + ___ Rmarket.

A. .35; .12

4.05; 1.32

15.44; .97

D. 26; 1.36


*

68. Diminish the variety of stocks in a investment portfolio from 50 come 10 would likely ________________.

increase the methodical risk that the portfolio

increase the unsystematic danger of the portfolio

increase the return the the portfolio

decrease the variation in return the investor deals with in any type of one year


69. If you desire to recognize the portfolio traditional deviation for a three-stock portfolio, you will have to ______.

calculate two covariances and also one trivariance

calculate just two covariances

calculate three covariances

average the variances of the separation, personal, instance stocks


70. I m sorry of the following correlation coefficients will produce the least diversification benefit?

-.6

-.3

0

.8


71. I m sorry of the adhering to correlation coefficients will create the most diversification benefits?

-.6

-.9

0

.4


72. What is the most most likely correlation coefficient between a stock-index common fund and also the S&P 500?

-1

0

1

.5


73. Investing in 2 assets with a correlation coefficient of -.5 will mitigate what sort of risk?

A. Sector riskB. Nondiversifiable riskC. Organized riskD. Distinctive risk


74. Investing in 2 assets with a correlation coefficient of 1 will reduce which sort of risk?

A. Market riskB. Unique riskC. Unsystematic riskD. No one of these alternatives (With a correlation that 1, no danger will it is in reduced.)


75. A investment portfolio of stocks fluctuates once the Treasury yields change. Due to the fact that this risk cannot be removed through diversification, the is called

__________.

firm-specific risk

systematic risk

unique risk

none of the options


76. As you lengthen the time horizon of her investment period and decision to invest for multiple years, you will uncover that:

I. The mean risk every year may be smaller over much longer investment horizons.

II. The overall risk of your investment will compound over time.

Your overall risk on the investment will certainly fall.

I only

I and also II only

III only

I, II, and also III


. You are considering including a brand-new security to your portfolio. To decision whether friend should include the security, you need to understand the security"s:

I. Supposed return

II. Typical deviation

Correlation with your portfolio

I only

I and II only

I and III only

I, II, and III


Which that the complying with is a correct expression worrying the formula because that the traditional deviation of returns of a two-asset portfolio where the correlation coefficient is positive?

A. σ2rp B. σ2rp = (W12σ12 + W22σ22)C. σ2rp = (W12σ12 - W22σ22)D. σ2rp > (W12σ12 + W22σ22)


79. What is the traditional deviation of a portfolio of two stocks offered the complying with data: stock A has actually a conventional deviation that 18%. Share B has actually a standard deviation that 14%. The portfolio includes 40% of share A, and also the correlation coefficient in between the two stocks is -.23.

9.7%

12.2%

14%

15.6%


80. What is the traditional deviation that a investment portfolio of two stocks given the complying with data: share A has actually a traditional deviation the 30%. Share B has a traditional deviation the 18%. The portfolio contains 60% of stock A, and the correlation coefficient in between the 2 stocks is -1.

0%

10.8%

18%

24%


81. The supposed return of a investment portfolio is 8.9%, and the risk-free price is 3.5%. If the portfolio standard deviation is 12%, what is the reward-to-variability proportion of the portfolio?

A. 0

B. .45

C. .74

D. 1.35


82. A project has a 60% possibility of copy your invest in 1 year and also a 40% chance of losing fifty percent your money. What is the typical deviation of this investment?

25%

50%

62%

73%


83. A project has a 50% opportunity of copy your invest in 1 year and also a 50% opportunity of losing half your money. What is the expected return top top this invest project?

0%

25%

50%

75%


84. The figures listed below show plots of monthly excess returns for two stocks plotted versus excess returns for a market index.

Which stock is likely to more reduce threat for an investor right now holding her portfolio in a well-diversified portfolio of common stock?

Stock A

Stock B

There is no difference between A or B.

The answer can not be determined from the info given.


85. The figures listed below show plots of monthly excess return for two stocks plotted against excess returns for a sector index.

Which stock is riskier come a nondiversified investor that puts all his money in only among these stocks?

Stock A is riskier.

Stock B is riskier.

Both stocks room equally risky.

The answer can not be figured out from the details given.


86. In the short article “Danger: High levels of company Stock,” what is the maximum amount of your employer’s stock that the author recommends you organize in your retirement account?

A. 5% B. 10%C. 50%D. 90%


87. The effective frontier to represent a collection of portfolios that

A. Maximize intended return for a provided level that risk.B. Minimize intended return because that a given level that risk.C. Maximize risk for a offered level of return.D. No one of the options.


88. The portfolio with the lowest typical deviation for any type of risk premium is referred to as the_______.

See more: Which Of The Following Is Not True About An Entrepreneur? ? Which Of The Following Is True Of An Entrepreneur

A. CAL portfolioB. Reliable frontier portfolioC. Global minimum variance portfolioD. Optimal risky portfolio


89. Lear Corp. Has actually an expected excessreturn the 8% next year. Assume Lear’s beta is 1.43. If the economy booms and the stock sector beats expectation by 5%, what to be Lear’s actual overfill return?

A. 7.15% B. 13%C. 15.15%D. 18.59 %


90. The plot the a security’s overfill return relative to the market’s overfill return is referred to as the _______.

A. Effective frontierB.security characteristics lineC. Capital allocation lineD. Resources market line