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 _________.

• 11.25%
• 3%
• 6.76%
• 3.43%

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?

• 5.67%
• 2.98%
• 4.25%
• 3.5%

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?

• 2.8
• 1.6
• 1.2
• 2.5

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