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Question
Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets.
What is the equation of Bo's capital allocation line?
A. E(rC) = 7.2 + 3.6 Standard Deviation of P
B. E(rC) = 3.6 + 1.167 Standard Deviation of P
C. E(rC) = 3.6 + 12.0 Standard Deviation of P
D. E(rC) = 0.2 + 1.167 Standard Deviation of P
E. E(rC) = 3.6 + 0.857 Standard Deviation of P
Answer
This answer is hidden. It contains 77 characters.
Related questions
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A. pure arbitrage.
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.
C. implications for prices derived from CAPM arguments are stronger than prices derived from APT arguments.
D. Both CAPM depends on risk-return dominance; APT depends on a no-arbitrage condition and 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.
E. All of the options are true.
Q:
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Q:
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Q:
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A. The CAPM
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C. Both the CAPM and the multifactor APT
D. Neither the CAPM nor the multifactor APT
E. None of the options are correct.
Q:
In a multifactor APT model, the coefficients on the macro factors are often called
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C. idiosyncratic risk.
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Q:
The capital asset pricing model assumes
A. all investors are price takers.
B. all investors have the same holding period.
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Q:
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Q:
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Q:
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Q:
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Q:
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Q:
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I) The one with the highest reward-to-variability ratio.
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A. I and III
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Q:
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Q:
In words, the covariance considers the probability of each scenario happening and the interaction between
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C. securities' returns relative to other securities' returns.
D. the level of return a security has in that scenario and the overall portfolio return.
E. the variance of the security's return in that scenario and the overall portfolio variance.
Q:
The risk that can be diversified away in a portfolio is referred to as ___________.
I) diversifiable risk
II) unique risk
III) systematic risk
IV) firm-specific risk
A. I, III, and IV
B. II, III, and IV
C. III and IV
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Q:
When two risky securities that are positively correlated but not perfectly correlated are held in a portfolio,
A. the portfolio standard deviation will be greater than the weighted average of the individual security standard
deviations.
B. the portfolio standard deviation will be less than the weighted average of the individual security standard
deviations.
C. the portfolio standard deviation will be equal to the weighted average of the individual security standard
deviations.
D. the portfolio standard deviation will always be equal to the securities' covariance.
Q:
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A. The business cycle
B. Interest rates
C. Personnel changes
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Q:
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A. +1.00
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C. 0.00
D. 1.00
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%
and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%.
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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%
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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