Question 1

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60% in a T-bill that pays 4.5%.His portfolio's expected return and standard deviation are __________ and __________, respectively.

Accepted Answer

A)  0.114; 0.126
B)  0.087; 0.068
C)  0.095; 0.113
D)  0.087; 0.124
E)  None of the options

Question 2

Discuss the characteristics of indifference curves, and the theoretical value of these curves in the portfolio building process.

Accepted Answer

Indifference curves represent the trade-...

Question 3

Elias is a risk-averse investor.David is a less risk-averse investor than Elias.Therefore,

Accepted Answer

A)  for the same risk, David requires a higher rate of return than Elias.
B)  for the same return, Elias tolerates higher risk than David.
C)  for the same risk, Elias requires a lower rate of return than David.
D)  for the same return, David tolerates higher risk than Elias.
E)  Cannot be determined

Question 4

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. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

Accepted Answer

A)  0.4667.
B)  0.8000.
C)  0.3095.
D)  0.41667.
E)  Cannot be determined

Question 5

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. A portfolio that has an expected outcome of $115 is formed by

Accepted Answer

A)  investing $100 in the risky asset.
B)  investing $80 in the risky asset and $20 in the risk-free asset.
C)  borrowing $43 at the risk-free rate and investing the total amount ($143)  in the risky asset.
D)  investing $43 in the risky asset and $57 in the riskless asset.
E)  Such a portfolio cannot be formed.

Question 6

The utility score an investor assigns to a particular portfolio, other things equal,

Accepted Answer

A)  will decrease as the rate of return increases.
B)  will decrease as the standard deviation decreases.
C)  will decrease as the variance decreases.
D)  will increase as the variance increases.
E)  will increase as the rate of return increases.

Question 7

You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

Accepted Answer

A)  0.325.
B)  0.675.
C)  0.912.
D)  0.407.
E)  Cannot be determined

Question 8

You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. 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 0.11

Accepted Answer

A)  53.8% and 46.2%
B)  75% and 25%
C)  62.5% and 37.5%
D)  46.2% and 53.8%
E)  Cannot be determined

Question 9

A fair game

Accepted Answer

A)  will not be undertaken by a risk-averse investor.
B)  is a risky investment with a zero risk premium.
C)  is a riskless investment.
D)  will not be undertaken by a risk-averse investor and is a risky investment with a zero risk premium.
E)  will not be undertaken by a risk-averse investor and is a riskless investment.

Question 10

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. 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 0.09

Accepted Answer

A)  85% and 15%
B)  75% and 25%
C)  67% and 33%
D)  57% and 43%
E)  Cannot be determined

Question 11

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. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08

Accepted Answer

A)  301% and 69.9%
B)  50.5% and 49.50%
C)  60.0% and 40.0%
D)  61.9% and 38.1%
E)  Cannot be determined

Question 12

Assume an investor with the following utility function: U = E(r)  - 3/2(s2) . To maximize her expected utility, which one of the following investment alternatives would she choose

Accepted Answer

A)  A portfolio that pays 10% with a 60% probability or 5% with 40% probability.
B)  A portfolio that pays 10% with 40% probability or 5% with a 60% probability.
C)  A portfolio that pays 12% with 60% probability or 5% with 40% probability.
D)  A portfolio that pays 12% with 40% probability or 5% with 60% probability.

Question 13

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 risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08

Accepted Answer

A)  30% and 70%
B)  50% and 50%
C)  60% and 40%
D)  40% and 60%
E)  Cannot be determined

Question 14

An investor invests 30% 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)  0.087; 0.06
C)  0.295; 0.06
D)  0.087; 0.12
E)  None of the options

Question 15

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 16

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 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; 0.128
B)  0.087; 0.063
C)  0.295; 0.125
D)  0.081; 0.052

Question 17

Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor.

Accepted Answer

The investor may combine a risk-free ass...

Question 18

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

Question 19

Based on their relative degrees of risk tolerance

Accepted Answer

A)  investors will hold varying amounts of the risky asset in their portfolios.
B)  all investors will have the same portfolio asset allocations.
C)  investors will hold varying amounts of the risk-free asset in their portfolios.
D)  investors will hold varying amounts of the risky asset and varying amounts of the risk-free asset in their portfolios.

Question 20

The first major step in asset allocation is

Accepted Answer

A)  assessing risk tolerance.
B)  analyzing financial statements.
C)  estimating security betas.
D)  identifying market anomalies.

Exam 6: Capital Allocation to Risky Assets

The utility score an investor assigns to a particular portfolio, other things equal,

Correct Answer
verified

Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor.

Correct Answer
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The investor may combine a risk-free ass...
View Answer

Discuss the characteristics of indifference curves, and the theoretical value of these curves in the portfolio building process.

Correct Answer
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Indifference curves represent the trade-...
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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
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Correct Answer
verified

Based on their relative degrees of risk tolerance

Correct Answer
verified

A fair game

Correct Answer
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You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

Correct Answer
verified

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. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

Correct Answer
verified

Correct Answer
verified

Elias is a risk-averse investor.David is a less risk-averse investor than Elias.Therefore,

Correct Answer
verified

The first major step in asset allocation is

Correct Answer
verified

Correct Answer
verified

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60% in a T-bill that pays 4.5%.His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70% in a T-bill that pays 6%.His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

Assume an investor with the following utility function: U = E(r) - 3/2(s²) . To maximize her expected utility, which one of the following investment alternatives would she choose

Correct Answer
verified

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. A portfolio that has an expected outcome of $115 is formed by

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

An investor invests 30% 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

Exam 6: Capital Allocation to Risky Assets

The utility score an investor assigns to a particular portfolio, other things equal,

Correct AnswerverifiedShow Answer

Describe how an investor may combine a risk-free asset and one risky asset in order to obtain the optimal portfolio for that investor.

Correct AnswerverifiedThe investor may combine a risk-free ass...View AnswerShow Answer

Discuss the characteristics of indifference curves, and the theoretical value of these curves in the portfolio building process.

Correct AnswerverifiedIndifference curves represent the trade-...View AnswerShow 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

Correct AnswerverifiedShow Answer

Based on their relative degrees of risk tolerance

Correct AnswerverifiedShow Answer

A fair game

Correct AnswerverifiedShow Answer

You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

Correct AnswerverifiedShow Answer

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. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

Elias is a risk-averse investor.David is a less risk-averse investor than Elias.Therefore,

Correct AnswerverifiedShow Answer

The first major step in asset allocation is

Correct AnswerverifiedShow Answer

Correct AnswerverifiedShow Answer

An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60% in a T-bill that pays 4.5%.His portfolio's expected return and standard deviation are __________ and __________, respectively.

Correct AnswerverifiedShow Answer

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70% in a T-bill that pays 6%.His portfolio's expected return and standard deviation are __________ and __________, respectively.

Correct AnswerverifiedShow Answer

Assume an investor with the following utility function: U = E(r) - 3/2(s2) . To maximize her expected utility, which one of the following investment alternatives would she choose

Correct AnswerverifiedShow Answer

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. A portfolio that has an expected outcome of $115 is formed by

Correct AnswerverifiedShow Answer

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

An investor invests 30% 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

Correct Answer
verified

Correct Answer
verified
The investor may combine a risk-free ass...
View Answer

Correct Answer
verified
Indifference curves represent the trade-...
View 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 Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

Correct Answer
verified

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 0.17 and a variance of 0.08 and 60% in a T-bill that pays 4.5%.His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70% in a T-bill that pays 6%.His portfolio's expected return and standard deviation are and , respectively.

Correct Answer
verified

Assume an investor with the following utility function: U = E(r) - 3/2(s²) . To maximize her expected utility, which one of the following investment alternatives would she choose

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

An investor invests 30% 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