Reference no: EM133073420
QUESTION 1: An investor invests 45% of her wealth in a risky asset with an expected rate of return of 12% and a variance of 5%, and she puts 55% in a Treasury bill that pays 5%. Her portfolio's expected rate of return and standard deviation are __________ and __________ respectively.
- 8.72%; 6.7%
- 5.68%; 12.68%
- 8.15%; 10.06%
- 12%; 15.7%
QUESTION 2: Consider the following two investment alternatives: First, a risky portfolio that pays a 20% rate of return with a probability of 75% or a 5% rate of return with a probability of 25%. Second, a Treasury bill that pays 5%. The risk premium on the risky portfolio is _________.
QUESTION 3: Which of the following statements is correct?
- Portfolios further to the right on the capital allocation line have higher Sharpe ratios
- Short selling the risk-free asset is equivalent to borrowing money at the risk free rate
- In a portfolio, asset weights must sum up to 0
- the capital allocation line is downward sloping
QUESTION 4: The returns of stock A for each of the past 3 years are 0.1, -0.05 and 0.12. What is the expected annual return of stock A?
QUESTION 5: The expected return on John's complete portfolio is 15%. The volatility of John's complete portfolio is 25%. The risk free rate is 5%. What is John's coefficient of risk aversion?
QUESTION 6: The expected return on the risky portfolio is 10%. The risk-free rate, as well as the investor's borrowing rate, is 4%. The standard deviation of return on the risky portfolio is 15%. If the standard deviation on the complete portfolio is 20%, the expected return on the complete portfolio is _________.
- 6.25%
- 5.69 %
- 11.98%
- 16.25%
QUESTION 7: Mary's coefficient of risk aversion A is 1. This means that
- For each unit of volatility, Mary requires an expected return equal to 100%.
- For each unit of variance, Mary requires an expected return equal to 100%.
- For each unit of volatility, Mary requires a risk premium equal to 100%.
- For each unit of variance, Mary requires a risk premium return equal to 100%.
QUESTION 8: My complete portfolio includes a risk-free asset and a risky portfolio. The risk premium of my complete portfolio is 5%. If I want to decrease the amount of risk premium, I must_____________
- triple the amount invested in the risk free asset
- decrease the amount invested in the risky portfolio
- do nothing
- triple the amount invested in the risky portfolio