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portfolio management

portfolio management

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Published by Aditi Taneja

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Published by: Aditi Taneja on Jun 16, 2012
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Schweser Printable Exams
SchweserPro 2012 CFA Level II
Question 1
- 88827
 If there are restrictions on short selling and borrowing at the risk-free rate, we would expect tosee that: A)both highly risk-averse individuals and those with less risk aversion tend toconcentrate their portfolios.B)highly risk-averse individuals tend to hold heavily diversified portfolios, while thosewith less risk aversion tend to concentrate their portfolios.C)less risk-averse individuals tend to hold heavily diversified portfolios, while those withmore risk aversion tend to concentrate their portfolios.Question 2
- 89397
 Mean-variance analysis assumes that investor preferences depend on all of the followingEXCEPT: A)correlations among asset returns.B)expected asset returns.C)skewness of the distribution of asset returns.Question 3
- 88804
 Which of the following is not typically included in an investment policy statement? A)Identification of duties.B)Names of specific managers or mutual funds that should be used.C)A client description.Question 4
- 89325
 Which of the following does NOT describe the capital allocation line (CAL)? A)The CAL is tangent to the minimum-variance frontier.B)It runs through the global minimum-variance portfolio.C)It is the efficient frontier when a risk-free asset is available.Question 5
- 89355
 Which of the following is an implication of the capital asset pricing model for investor’s portfoliodecisions? A)Less risk-averse investors will hold less of a broadly based index and more of therisk-free asset.B)All investors will hold some combination of a broadly based market index and the
risk-free asset.C)Less risk-averse investors will overweight high-beta stocks relative to the marketportfolio.Question 6
- 88275
  An asset’s alpha returns are returns earned in addition to the asset’s: A)ex ante returns.B)projected returns.C)required returns.Question 7
- 89365
 What are the expected return and expected standard deviation for the two-asset portfoliodescribed as:
Expected Return/Correlation Variance Weight 
) = 10% Var(1) = 9% w
= 30%E(R
) = 15% Var(2) = 25% w
= 70%
= 0.4E(R
 A)13.5%39.47%B)10.5%15.58%C)11.5%3.95%Question 8
- 88914
 Which of the following is NOT an assumption necessary to derive the capital asset pricingmodel (CAPM)? A)Investors only need to know expected returns, variances, and covariances in order create optimal portfolios.B)Investors are price takers whose buy and sell decisions don't affect asset prices.C)Transactions costs are small for large investors.Question 9
- 88946
 Which of the following will NOT encourage international market integration? A)Widespread use of the international capital asset pricing model (ICAPM).B)International political stability.C)Absence of trade restrictions.Question 10
- 89370
  A portfolio manager uses a two-factor model to manage her portfolio. The two factors areconfidence risk and time-horizon risk. If she wants to bet on an unexpected increase in theconfidence risk factor (which has a positive risk premium), but hedge away her exposure totime-horizon risk (which has a negative risk premium), she should create a portfolio with asensitivity of:
 A)1.0 to the confidence risk factor and -1.0 to the time-horizon factor.B)1.0 to the confidence risk factor and 0.0 to the time-horizon factor.C)−1.0 to the confidence risk factor and 1.0 to the time-horizon factor.Question 11
- 89357
 Which of the following models is NOT consistent with the concept that investors can earn anadditional risk premium for holding dimensions of risk unrelated to market movements? A)The capital asset pricing model (CAPM).B)The arbitrage pricing theory.C)Macroeconomic multi-factor models.Question 12
- 88899
 The investment policy statement does not contain: A)industry specifics for potential investment.B)guidelines for adjusting portfolio composition.C)a client description.Question 13
- 88907
 What is the beta of Hamburg Corp.’s stock if the covariance of the stock with the marketportfolio is 0.23, and the standard deviation of the market returns is 32%? A)1.65.B)0.72.C)2.25.Question 14
- 88847
 When markets are at equilibrium, all asset: A)alphas will equal zero.B)betas will equal zero.C)alphas will be positive.Question 15
- 88974
 Paul Wilkes, a U.S. investor, is interested in investing in securities in the Caribbean country of Grenada. He is convinced that current market conditions make the securities of Grenada veryattractive relative to those securities of other countries. Wilkes’ current portfolio is composedentirely of domestic securities, with an allocation of 60% equity and 40% fixed income. Wilkeshas little experience in global investing, but has decided that the timing is right to invest at least10% of his portfolio in foreign assets. Wilkes is particularly attracted to the high rate of returnattainable in the Grenada market, but first needs to determine if the additional risk outweighsthe return. After carefully developing his investment criteria and researching the financial markets oGrenada, Wilkes has narrowed his potential investments down to one choice. The secondarymarkets for equities issued in Grenada are more illiquid than Wilkes had previously thought.This lack of liquidity in the equities market leads Wilkes to determine that equities would be aninappropriate investment for his portfolio. However, bonds issued by the government of 

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