Question 1

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are __________ and __________, respectively.

Accepted Answer

A)   0.114; 0.12
B)   0.096; 0.08
C)   0.295; 0.06
D)   0.087; 0.12
E)   None of the options are correct.

Question 2

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.

Accepted Answer

A)   0.089; 0.111
B)   0.087; 0.063
C)   0.096; 0.126
D)   0.087; 0.144

Question 3

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 70% in a T-bill that pays 3%. His portfolio's expected return and standard deviation are __________ and __________, respectively.

Accepted Answer

A)   0.086; 0.242
B)   0.054; 0.104
C)   0.295; 0.123
D)   0.087; 0.182
E)   None of the options are correct.

Question 4

The presence of risk means that

Accepted Answer

A)   investors will lose money.
B)   more than one outcome is possible.
C)   the standard deviation of the payoff is larger than its expected value.
D)   final wealth will be greater than initial wealth.
E)   terminal wealth will be less than initial wealth.

Question 5

A reward-to-volatility ratio is useful in

Accepted Answer

A)   measuring the standard deviation of returns.
B)   understanding how returns increase relative to risk increases.
C)   analyzing returns on variable-rate bonds.
D)   assessing the effects of inflation.
E)   None of the options are correct.

Question 6

According to the mean-variance criterion, which one of the following investments dominates all others?

Accepted Answer

A)   E(r)  = 0.15; Variance = 0.20
B)   E(r)  = 0.10; Variance = 0.20
C)   E(r)  = 0.10; Variance = 0.25
D)   E(r)  = 0.15; Variance = 0.25
E)   None of these options dominates the other alternatives.

Question 7

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6%. An investor has the following utility function: U = E(r)  − (A/2) s2. Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

Accepted Answer

A)   5
B)   6
C)   7
D)   8

Question 8

Use the below information to answer the following question.   Investment  Expected Return E(r)  Standard Deviation 10.120.1320.150.1530.210.1640.240.21\begin{array}{llcc}	ext { Investment } &	ext { Expected Return } E(r)  &	ext { Standard Deviation }\1&0.12&0.13\2&0.15&0.15\3&0.21&0.16\4&0.24&0.21\\end{array} Investment 1234​ Expected Return E(r) 0.120.150.210.24​ Standard Deviation 0.130.150.160.21​ 
 U = E(r) ? (A/2) s2, where A = 4.0.
Based on the utility function above, which investment would you select?

Accepted Answer

A)   1
B)   2
C)   3
D)   4
E)   Cannot be determined from the information given.

Question 9

Which of the following statements is(are)  false? I)  Risk-averse investors reject investments that are fair games.II)  Risk-neutral investors judge risky investments only by the expected returns.III)  Risk-averse investors judge investments only by their riskiness.IV)  Risk-loving investors will not engage in fair games.

Accepted Answer

A)   I only
B)   II only
C)   I and II only
D)   II and III only
E)   III and IV only

Exam 6: Capital Allocation to Risky Assets

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.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6%. An investor has the following utility function: U = E(r) − (A/2) s². Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

Correct Answer
verified

A reward-to-volatility ratio is useful in

Correct Answer
verified

The presence of risk means that

Correct Answer
verified

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 70% in a T-bill that pays 3%. His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

According to the mean-variance criterion, which one of the following investments dominates all others?

Correct Answer
verified

Exam 6: Capital Allocation to Risky Assets

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.

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are __________ and __________, respectively.

Correct AnswerverifiedShow Answer

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6%. An investor has the following utility function: U = E(r) − (A/2) s2. Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

Correct AnswerverifiedShow Answer

A reward-to-volatility ratio is useful in

Correct AnswerverifiedShow Answer

The presence of risk means that

Correct AnswerverifiedShow Answer

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 70% in a T-bill that pays 3%. His portfolio's expected return and standard deviation are __________ and __________, respectively.

Correct AnswerverifiedShow Answer

According to the mean-variance criterion, which one of the following investments dominates all others?

Correct AnswerverifiedShow Answer

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.

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

A portfolio has an expected rate of return of 0.15 and a standard deviation of 0.15. The risk-free rate is 6%. An investor has the following utility function: U = E(r) − (A/2) s². Which value of A makes this investor indifferent between the risky portfolio and the risk-free asset?

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 70% in a T-bill that pays 3%. His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

Correct Answer
verified