Reference no: EM13709945

Define Investment Management Questions

Problem: Need help with the following Investment Management Questions:

Problem1- The risk of a portfolio consisting of two uncorrelated assets will be

i. Equal to zero.

ii. Greater than the risk of the least risky asset but less than the risk level of the more risky asset.

iii. Greater than zero but less than the risk of the more risky asset.

iv. Equal to the average of the risk level of the two assets.

Problem2- The beta of the market is

i. -1.0.

ii. 0.0.

iii. 1.0.

iv. Undefined.

Problem3- Portfolio objectives should be established independently of tax considerations.

True

False

Problem4- A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42.

True

False

Problem5- Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.

True

False

Problem6- The Capital Asset Pricing Model (CAPM) includes which of the following in its base assumptions?

I. Investors should earn a minimum retun rate equal to the risk-free rate.

II. Investors in the market should earn a return greater than the return on the overall market.

III. Investors shoud be awarded for the amount of risk they assume.

IV. Investors should earn a return located above the Security Market Line.

I and III only

II and IV only

I, II and III only

I, III, and IV only

Problem7- To obtain the maximum reduction in risk, an investor should combine assets that

i. Are negatively correlated.

ii. Are uncorrelated.

iii. Have a correlation coefficient of positive one.

iv. Have a correlation coefficient of negative one.

Problem8- Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

True

False

Problem9- Traditional portfolio management

i. Concentrates on only the most recent "hot" sectors of the market.

ii. Typically centers on interindustry diversification.

iii. Includes only diversified bonds in a laddered portfolio.

iv. Is based on statistical measures to develop the portfolio plan.

Problem10- Amanda has the following portfolio of assets.

i. Poporation of

ii. Stock Portfolio Beta

iii. ABC $7,000 .85

iv. DEF $12,000 1.25

v. GHI $6,000 1.10

Problem11- What is the beta of Jonathan's portfolio?

i. 1.06

ii. 1.10

iii. 1.13

iv. 3.02

Solve the following problems

Problem1- A measure of systematic risk

i. Standard deviation

ii. Historical average rate of return

iii. Beta

iv. Variance

Problem2- Diversifiable risk is also called systematic risk.

True

False

Problem3- Studies have shown that investing in different industries as well as different countries reduces portfolio risk.

True

False

Problem4- Which of the following factors comprise the CAPM?

I. Divendend yield

II. Risk-free rate of return

III. The expected rate of return on the market

IV. Risk premuim for the firm

I and III only

II and IV only

III and IV only

II, III and IV only

Problem5- Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0. This information indicates that

i. Security A has the highest degree of market risk.

ii. Security B has 20% more systematic risk than the market.

iii. Security C has the highest degree of market risk.

iv. Security C would be the best investment if a strong bull market is expected.

Problem6- The market rate of return increased by 8% while the rate of return on XYZ stock increased by 4%. The beta of XYZ stock is

i. -2.0.

ii. -0.40.

iii. 0.50.

iv. 2.0.

 

Problem7- A coefficient of determination of 0.6 means that 40% of the variation in a security's return is related to factors other than the security's relationship to the market.

True

False

Problem8- A portfolio that offers the lowest risk for a given level of return is known as an efficient portfolio.

True

False

Problem9- In designing a portfolio, the only relevant risk is

i. Ttotal risk.

ii. Unsystematic risk.

iii. Event risk.

iv. Nondiversifiable risk.

Problem10- The basic theory linking risk and return is the Capital Asset Pricing Model

True

False

Solve the following problems

Problem1- A stock's beta value is a measure of

i. Interest rate risk.

ii. Total risk.

iii. Systematic risk.

iv. Diversifiable risk.

Problem2- The investment choice of an individual is affected by

I. Their tolerance for risk

II. Their prior investment experience

III. Their marginal tax braket

IV. The stability of their income

II and III only

II, III and IV only

I, III and IV only

I, II, III and IV

Problem3- The optimal portfolio for an individual investor is represented by the point that lies on the

i. Lowest possible utility curve and connects to the efficient frontier.

ii. Utility curve which is just tangent to the right side of the feasible set of risk-return options.

iii. Utility curve which is just tangent to the efficient frontier.

iv Uutility curve which represents the highest possible rate of return within the feasible set of risk-return options.

Problem4- Portfolio objectives should be established before beginning to invest.

True

False

Problem5- Market return is the average return on a large sample of stocks such as those in the Standard & Poor's 500 Stock Composite Index.

True

False

Problem6- Risk can be totally eliminated by combining two assets that are perfectly positively correlated.

True

False

Problem7- Historical betas are always reliable predictors of future return fluctuations.

True

False

Problem8- When the Capital Asset Pricing Model is depicted graphically, the result is the

i. Standard deviation line.

ii. Coefficient of variation line.

iii. Security market line.

iv. Alpha-beta line.

Problem9- The best stock to own when the stock market is at a peak and is expected to decline in value is one with a beta of

i. +1.5.

ii. +1.0.

iii. -1.0.

iv -0.5.

Problem10- Beta measures diversifiable risk while standard deviation measures systematic risk.

True

False

I need the answer the above problems.