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Question
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a
T-bill with a rate of return of 0.045.
A portfolio that has an expected outcome of $114 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. borrowing $46 at the risk-free rate and investing the total amount ($146) in the risky asset.
D. investing $43 in the risky asset and $57 in the risk-free asset.
E. Such a portfolio cannot be formed.
Answer
This answer is hidden. It contains 125 characters.
Related questions
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B. risk arbitrage.
C. option arbitrage.
D. equilibrium arbitrage.
Q:
An important difference between CAPM and APT is
A. CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition.
B. CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
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E. All of the options are true.
Q:
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Q:
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C. Both the CAPM and the multifactor APT
D. Neither the CAPM nor the multifactor APT
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Q:
In a multifactor APT model, the coefficients on the macro factors are often called
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Q:
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Q:
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Q:
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A. I and III
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Q:
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Q:
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E. the variance of the security's return in that scenario and the overall portfolio variance.
Q:
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II) unique risk
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Q:
When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,
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Q:
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Q:
For a two-stock portfolio, what would be the preferred correlation coefficient between the two stocks?
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C. 0.00
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E. None of the options are correct.
Q:
Which statement about portfolio diversification is correct?
A. Proper diversification can eliminate systematic risk.
B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities
have been purchased.
C. Because diversification reduces a portfolio's total risk, it necessarily 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 statements are correct.
Q:
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A. is likely to be higher in an increasing market.
B. results from factors unique to the firm.
C. depends on market volatility.
D. cannot be diversified away.
Q:
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10%
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A. 8.5%
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Q:
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10%
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A. 0.24; 0.76
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C. 0.57; 0.43
D. 0.43; 0.57
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Q:
Consider the following probability distribution for stocks A and B: The standard deviations of stocks A and B are _____ and _____, respectively.
A. 1.5%; 1.9%
B. 2.5%; 1.1%
C. 3.2%; 2.0%
D. 1.5%; 1.1%
Q:
The variance of a portfolio of risky securities
A. is a weighted sum of the securities' variances.
B. is the sum of the securities' variances.
C. is the weighted sum of the securities' variances and covariances.
D. is the sum of the securities' covariances.
E. None of the options are correct.
Q:
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a
T-bill with a rate of return of 0.03.
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. 75% and 25%
C. 62.5% and 37.5%
D. 57% and 43%
E. Cannot be determined.
Q:
An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of
0.10 and 65% in a T-bill that pays 4%. His portfolio's expected return and standard deviation are __________
and __________, respectively.
A. 0.089; 0.111
B. 0.087; 0.063
C. 0.096; 0.126
D. 0.087; 0.144