Chapter 07 Optimal Risky Portfolios.docx

Chapter 07 Optimal Risky Portfolios.docx

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Chapter07OptimalRiskyPortfolios

Chapter07

OptimalRiskyPortfolios

MultipleChoiceQuestions

1. Marketriskisalsoreferredtoas 

A. systematicrisk,diversifiablerisk.

B. systematicrisk,nondiversifiablerisk.

C. uniquerisk,nondiversifiablerisk.

D. uniquerisk,diversifiablerisk.

E. firm-specificrisk.

2. Systematicriskisalsoreferredtoas 

A. marketrisk,nondiversifiablerisk.

B. marketrisk,diversifiablerisk.

C. uniquerisk,nondiversifiablerisk.

D. uniquerisk,diversifiablerisk.

E. firm-specificrisk.

3. Nondiversifiableriskisalsoreferredtoas 

A. systematicrisk,uniquerisk.

B. systematicrisk,marketrisk.

C. uniquerisk,marketrisk.

D. uniquerisk,firm-specificrisk.

E. systematicrisk,firm-specificrisk.

4. Diversifiableriskisalsoreferredtoas 

A. systematicrisk,uniquerisk.

B. systematicrisk,marketrisk.

C. uniquerisk,marketrisk.

D. uniquerisk,firm-specificrisk.

E. systematicrisk,firm-specificrisk.

5. Uniqueriskisalsoreferredtoas 

A. systematicrisk,diversifiablerisk.

B. systematicrisk,marketrisk.

C. diversifiablerisk,marketrisk.

D. diversifiablerisk,firm-specificrisk.

E. marketrisk.

6. Firm-specificriskisalsoreferredtoas 

A. systematicrisk,diversifiablerisk.

B. systematicrisk,marketrisk.

C. diversifiablerisk,marketrisk.

D. diversifiablerisk,uniquerisk.

E. nondiversifiable,marketrisk.

7. Non-systematicriskisalsoreferredtoas 

A. marketrisk,diversifiablerisk.

B. firm-specificrisk,marketrisk.

C. diversifiablerisk,marketrisk.

D. diversifiablerisk,uniquerisk.

E. nondiversifiablerisk,uniquerisk.

8. Theriskthatcanbediversifiedawayis 

A. firm-specificrisk.

B. beta.

C. systematicrisk.

D. marketrisk.

E. non-systematicrisk.

9. Theriskthatcannotbediversifiedawayis 

A. firm-specificrisk.

B. unique.

C. non-systematicrisk.

D. marketrisk.

E. uniqueriskandnon-systematicrisk.

10. Thevarianceofaportfolioofriskysecurities 

A. isaweightedsumofthesecurities'variances.

B. isthesumofthesecurities'variances.

C. istheweightedsumofthesecurities'variancesandcovariances.

D. isthesumofthesecurities'covariances.

E. istheweightedsumofthesecurities'covariances.

11. Thestandarddeviationofaportfolioofriskysecuritiesis 

A. thesquarerootoftheweightedsumofthesecurities'variances.

B. thesquarerootofthesumofthesecurities'variances.

C. thesquarerootoftheweightedsumofthesecurities'variancesandcovariances.

D. thesquarerootofthesumofthesecurities'covariances.

E. istheweightedsumofthesecurities'covariances.

12. Theexpectedreturnofaportfolioofriskysecurities 

A. isaweightedaverageofthesecurities'returns.

B. isthesumofthesecurities'returns.

C. istheweightedsumofthesecurities'variancesandcovariances.

D. isbothaweightedaverageofthesecurities'returnsandaweightedsumofthesecurities'variancesandcovariances.

E. istheweightedsumofthesecurities'covariances.

13. Otherthingsequal,diversificationismosteffectivewhen 

A. securities'returnsareuncorrelated.

B. securities'returnsarepositivelycorrelated.

C. securities'returnsarehigh.

D. securities'returnsarenegativelycorrelated.

E. bothsecurities'returnsarepositivelycorrelatedandsecurities'returnsarehigh.

14. Theefficientfrontierofriskyassetsis 

A. theportionoftheinvestmentopportunitysetthatliesabovetheglobalminimumvarianceportfolio.

B. theportionoftheinvestmentopportunitysetthatrepresentsthehigheststandarddeviations.

C. theportionoftheinvestmentopportunitysetwhichincludestheportfolioswiththeloweststandarddeviation.

D. thesetofportfoliosthathavezerostandarddeviation.

E. boththeportionoftheinvestmentopportunitysetthatliesabovetheglobalminimumvarianceportfolioandtheportionoftheinvestmentopportunitysetthatrepresentsthehigheststandarddeviations.

15. TheCapitalAllocationLineprovidedbyarisk-freesecurityandNriskysecuritiesis 

A. thelinethatconnectstherisk-freerateandtheglobalminimum-varianceportfoliooftheriskysecurities.

B. thelinethatconnectstherisk-freerateandtheportfoliooftheriskysecuritiesthathasthehighestexpectedreturnontheefficientfrontier.

C. thelinetangenttotheefficientfrontierofriskysecuritiesdrawnfromtherisk-freerate.

D. thehorizontallinedrawnfromtherisk-freerate.

E. thelinethatconnectstherisk-freerateandtheglobalmaximum-varianceportfoliooftheriskysecurities.

16. Consideraninvestmentopportunitysetformedwithtwosecuritiesthatareperfectlynegativelycorrelated.Theglobalminimumvarianceportfoliohasastandarddeviationthatisalways 

A. greaterthanzero.

B. equaltozero.

C. equaltothesumofthesecurities'standarddeviations.

D. equalto−1.

E. betweenzeroand−1.

17. Whichofthefollowingstatementsis（are）trueregardingthevarianceofaportfoliooftworiskysecurities?

A. Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovariance.

B. Thereisalinearrelationshipbetweenthesecurities'coefficientofcorrelationandtheportfoliovariance.

C. Thedegreetowhichtheportfoliovarianceisreduceddependsonthedegreeofcorrelationbetweensecurities.

D. Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovarianceandthereisalinearrelationshipbetweenthesecurities'coefficientofcorrelationandtheportfoliovariance.

E. Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovarianceandthedegreetowhichtheportfoliovarianceisreduceddependsonthedegreeofcorrelationbetweensecurities.

18. Whichofthefollowingstatementsis（are）falseregardingthevarianceofaportfoliooftworiskysecurities?

A. Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovariance.

B. Thereisalinearrelationshipbetweenthesecurities'coefficientofcorrelationandtheportfoliovariance.

C. Thedegreetowhichtheportfoliovarianceisreduceddependsonthedegreeofcorrelationbetweensecurities.

D. Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovarianceandthereisalinearrelationshipbetweenthesecurities'coefficientofcorrelationandtheportfoliovariance.

E. Thehigherthecoefficientofcorrelationbetweensecurities,thegreaterthereductionintheportfoliovarianceandthedegreetowhichtheportfoliovarianceisreduceddependsonthedegreeofcorrelationbetweensecurities.

19. EfficientportfoliosofNriskysecuritiesareportfoliosthat 

A. areformedwiththesecuritiesthathavethehighestratesofreturnregardlessoftheirstandarddeviations.

B. havethehighestratesofreturnforagivenlevelofrisk.

C. areselectedfromthosesecuritieswiththeloweststandarddeviationsregardlessoftheirreturns.

D. havethehighestriskandratesofreturnandthehigheststandarddeviations.

E. havetheloweststandarddeviationsandthelowestratesofreturn.

20. Whichofthefollowingstatement（s）is（are）trueregardingtheselectionofaportfoliofromthosethatlieontheCapitalAllocationLine?

A. Lessrisk-averseinvestorswillinvestmoreintherisk-freesecurityandlessintheoptimalriskyportfoliothanmorerisk-averseinvestors.

B. Morerisk-averseinvestorswillinvestlessintheoptimalriskyportfolioandmoreintherisk-freesecuritythanlessrisk-averseinvestors.

C. Investorschoosetheportfoliothatmaximizestheirexpectedutility.

D. Lessrisk-averseinvestorswillinvestmoreintherisk-freesecurityandlessintheoptimalriskyportfoliothanmorerisk-averseinvestorsandinvestorswillchoosetheportfoliothatmaximizestheirexpectedutility.

E. Morerisk-averseinvestorswillinvestlessintheoptimalriskyportfolioandmoreintherisk-freesecuritythanlessrisk-averseinvestorsandinvestorswillchoosetheportfoliothatmaximizestheirexpectedutility.

21. Whichofthefollowingstatement（s）is（are）falseregardingtheselectionofaportfoliofromthosethatlieontheCapitalAllocationLine?

A. Lessrisk-averseinvestorswillinvestmoreintherisk-freesecurityandlessintheoptimalriskyportfoliothanmorerisk-averseinvestors.

B. Morerisk-averseinvestorswillinvestlessintheoptimalriskyportfolioandmoreintherisk-freesecuritythanlessrisk-averseinvestors.

C. Investorschoosetheportfoliothatmaximizestheirexpectedutility.

D. Lessrisk-averseinvestorswillinvestmoreintherisk-freesecurityandlessintheoptimalriskyportfoliothanmorerisk-averseinvestorsandmorerisk-averseinvestorswillinvestlessintheoptimalriskyportfolioandmoreintherisk-freesecuritythanlessrisk-averseinvestors.

E. Lessrisk-averseinvestorswillinvestmoreintherisk-freesecurityandlessintheoptimalriskyportfoliothanmorerisk-averseinvestorsandinvestorschoosetheportfoliothatmaximizestheirexpectedutility.

 ConsiderthefollowingprobabilitydistributionforstocksAandB:

22. TheexpectedratesofreturnofstocksAandBare_____and_____,respectively. 

A. 13.2%;9%

B. 14%;10%

C. 13.2%;7.7%

D. 7.7%;13.2%

E. 13.8%;9.3%

23. ThestandarddeviationsofstocksAandBare_____and_____,respectively. 

A. 1.5%;1.9%

B. 2.5%;1.1%

C. 3.2%;2.0%

D. 1.5%;1.1%

E. 1.8%;1.6%

24. ThevariancesofstocksAandBare_____and_____,respectively. 

A. 1.5%;1.9%

B. 2.2%