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- Chapter 1- Understanding Investments
- Possible Mid-term Questions - Copy
- ch07
- Markowitz Mcq
- Chapter 11 EMH
- Theory of Portfolio Investment
- Chapter 4- Securities Markets
- Chapter 2- Investment Alternatives
- chapter# 5 of Investments Principles & Concepts International Student Version 11th Edition
- 14-22
- Chapter 21- Portfolio Management
- Chapter 18- Bonds- Analysis and Strategy
- Gold During Recession
- ch06
- Ch10 Common Stock
- Chap 008
- ch16
- ch09
- 10 Soal PG Pilihan Asset Pricing
- Chap 018

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1.

a. has serious flaws because of its complexity.

b. measures relevant risk of a security and shows the

relationship between

risk and expected return.

c. was developed by Markowitz in the 1930s.

d. discounts almost all of the Markowitz portfolio

theory.: b. measures relevant risk of a security and shows the

relationship between

risk and expected return.

2.

8.

a. risk averse.

b. risk neutral.

c. risk seekers.

d. risk moderators.: a. risk averse.

9.

distribution which is:

a. upward sloping.

b. downward sloping.

c. linear.

d. bell-shaped.: d. bell-shaped.

10.

3. Probability distributions:

a. are always discrete.

b. are always continuous.

c. can be either discrete or continuous.

d. are inverse to interest rates.: c. can be either discrete or

continuous.

a. dividing standard deviation by expected value.

b. calculating the percentage each asset is to the total

portfolio value.

c. calculating the return of each asset to total portfolio

return.

d. dividing expected value by the standard deviation: b.

calculating the percentage each asset is to the total portfolio

value.

11.

a. savings account

b. certificate of deposit

c. Treasury bill

d. Treasury bond: Treasury bill

the CMT?

a. All investors have the same one-period time horizon.

b. There are no personal income taxes.

c. There is no interest rate charged on borrowing.

d. There are no transaction costs.: There is no interest rate

charged on borrowing.

6.

a. Liquidity of positions.

b. Investor preferences are based only on expected

return and risk.

c. Low transactions costs.

d. A single investment period.: d. A single investment

period.

a. are assumed to be risk-seekers.

b. are not allowed to use leverage.

c. are assumed to be institutional investors.

d. all of the above.: b. are not allowed to use leverage.

5.

portfolio theory?

the expected return of security XYZ.

Security XYZ's

Potential return Probability

20% 0.3

30% 0.2 -40% 0.1 50% 0.1 10% 0.3

a. 16 percent

b. 22 percent

c. 25 percent d. 18 percent: a. 16 percent Solution:

b. 22 percent E(R) = Ripri

c. 25 percent = (20)(0.3) + (30)(0.2) + (- 40)(0.1) + (50)(0.1) +

d. 18 percent = (10)(0.3) = 22 percent

4.

a. inverse of the standard deviation

b. correlation between a security's risk and return.

c. weighted average of all possible outcomes.

d. same as the discrete probability distribution.: c.

weighted average of all possible outcomes.

3.

7.

12.

a. cannot be determined.

b. occurs at the point of tangency between the highest

indifference curve and the highest expected return.

c. occurs at the point of tangency between the highest

indifference curve and the efficient set of portfolios.

d. occurs at the point of tangency between the highest

expected return and lowest risk efficient portfolios.: c.

occurs at the point of tangency between the highest indifference

curve and the efficient set of portfolios.

13.

14.

20.

b. It can only be positive.

c. It can never be above the highest individual return.

d. All of the above are true.: c. It can never be above the

highest individual return.

a. aggressive investors.

b. conservative investors.

c. risk-averse investors.

d. defensive investors.: a. aggressive investors.

21.

a. optimal.

b. unattainable.

c. dominant.

d. dominated.: d. dominated.

16.

percent.

b. Security B's return should decrease by 10 percent.

c. Security B's return should be zero.

d. Security B's return is impossible to determine from

the above information.: d. Security B's return is impossible to

determine from the above information.

a. market risk.

b. systematic risk.

c. non-diversifiable risk.

d. idiosyncratic risk.: d. idiosyncratic risk.

22.

correlation with each other.

b. A portfolio with securities all having zero correlation

with each other.

c. A portfolio with securities all having negative

correlation with each other.

d. A portfolio with securities all having skewed

correlation with each other.: a. A portfolio with securities all

having positive correlation with each other.

correlation coefficient is not true?

a. It is a statistical measure.

b. It measure the relationship between two securities'

returns.

c. It determines the causes of the relationship between

two securities' returns.

d. All of the above are true.: c. It determines the causes of the

relationship between two securities' returns.

18.

23.

risk of the portfolio is:

a. 0 to +1.0

b. 0 to +2.0

c. -1.0 to 0

d. -1.0 to +1.0: d. -1.0 to +1.0

a. zero.

b. the weighted average of the individual securities risk.

c. equal to the correlation coefficient between the

securities.

d. infinite.: b. the weighted average of the individual securities

risk.

require for a universe of 500 securities?

a. 1002

b. 1502

c. 500

d. 502: Solution: Number = 3n + 2

a. CML . . . individual stocks and efficient portfolios

b. CML . . . both efficient and inefficient portfolios, only

c. SML . . . individual securities and efficient portfolios

d. SML . . . individual securities, inefficient portfolios,

and efficient

portfolios.: SML . . . individual securities and efficient

portfolios

24.

19.

reduction of risk?

a. lowest risk.

b. highest risk.

c. highest utility.

d. least investment.: c. highest utility.

17.

coefficient of 0. If Security A's return is expected to

increase by 10 percent,

described as

15.

return of a portfolio?

25.

a. expected value..

b. portfolio beta.

c. weighted average of individual risk.

d. standard deviation.: d. standard deviation.

26.

32.

b. inflation risk.

c. business risk.

d. market risk.: d. market risk.

27.

a. nondiversifiable risk.

b. market risk.

c. random risk.

d. company-specific risk.: d. company-specific risk.

33.

of their common:

a. currency.

b. relationship to each other.

c. relationship to the market.

d. desire to make a profit.: c. relationship to the market.

28.

a. positive.

b. negative.

c. zero.

d. impossible to determine.: a. positive.

34.

35.

a. a hostile takeover

b. a rise in inflation

c. a fall in GDP

d. a panic on Wall Street: a. a hostile takeover

applications of:

30.

31.

36.

37.

average.

b. foreign stocks tend to fall more in declining markets

than U.S. stocks.

c. foreign stocks have high correlation with U.S. stocks.

d. foreign stocks have higher transaction costs, on

average, than U.S. stocks.: c. foreign stocks have high

correlation with U.S. stocks.

a. lack of accuracy.

b. predictability flaws.

c. complexity.

d. inability to handle large number of inputs.: c.

complexity.

diversification is that:

both assume all except

which of the following?

a. Investors have homogeneous beliefs.

b. Investors are risk-averse utility maximizers.

c. Borrowing and lending can be done at the rate RF.

d. Markets are perfect.: Borrowing and lending can be done

at the rate RF.

a. that risk is the same for each type of financial asset.

b. that risk is a function of credit, liquidity and market

factors.

c. risk is not quantifiable.

d. insight about the relative importance of variances

and covariances in determining portfolio risk.: d. insight

about the relative importance of variances and covariances in

determining portfolio risk.

source of systematic risk?

b. random diversification.

c. passive portfolio approach.

d. the modern portfolio theory.: d. the modern portfolio

theory.

the:

a. Risk-free Model.

b. CAPM.

c. CML.

d. Market Model.: d. Market Model.

market index is referred to as the:

29.

be:

a. parameter.

b. unique part.

c. error term.

d. beta.: c. error term.

38.

a. law of averages.

b. law of attraction.

c. law of accelerating return.

d. law of one price.: law of one price.

39.

that has the

a. largest expected return for the smallest level of risk.

b. largest expected return and zero risk.

c. largest expected return for a given level of risk.

d. smallest level of risk.: c. largest expected return for a given

level of risk.

40.

47.

based on:

a. perfectly positively correlated with each other.

b. perfectly independent of each other.

c. perfectly negatively correlated with each other.

d. of the same category, e.g. blue chips.: a. perfectly

positively correlated with each other.

a. expected return.

b. risk.

c. expected return and risk.

d. transactions costs.: c. expected return and risk.

41.

a. considers only one factor and is a narrower model

than the CAPM.

b. considers more factors than the CAPM and is a

broader model.

c. is useful only for well-diversified portfolios of

common stock.

d. is easy to practice because the factors are readily

observable.: considers more factors than the CAPM and is a

broader model.

42.

48.

49.

50.

b. only the expected return of the portfolio.

c. only the risk level of the portfolio.

d. neither the expected return nor the risk level of the

portfolio.: c. only the risk level of the portfolio.

the efficient frontier.

45.

46.

51.

a. supply; demand

b. control; non-control

c. company-related; industry-related

d. micro; macro: d. micro; macro

52.

risk and

required return for

a. all assets.

b. inefficient portfolios.

c. only efficient portfolios.

d. only individual securities.: all assets.

a. alpha

b. beta

c. standard deviation

d. coefficient of variation: b. beta

_______ and ________ parts.

a. all securities would lie on the SML.

b. any security that plots below the SML would be

considered undervalued.

c. any security that lies above the SML would be

considered overvalued.

d. no security would lie on the SML..: all securities would

lie on the SML.

a. The CML is an equilibrium relationship for efficient

portfolios and

individual securities.

b. The CML represents the risk-return tradeoff in

equilibrium for efficient

portfolios.

c. The intercept of the CML is the reward per unit of

time available to

investors for deferring consumption.

d. Standard deviation is the measure of risk which

determines a portfolio's

equilibrium return.: The CML is an equilibrium relationship

for efficient portfolios and

individual securities.

of 8 percent.

b. B: expected return of 18 percent; standard deviation

of 13 percent

c. C: expected return of 38 percent; standard deviation

of 38 percent.

d. D: expected return of 15 percent; standard deviation

of 14 percent.: d. D: expected return of 15 percent; standard

deviation of 14 percent.

portfolio. It:

a. is readily and precisely observable.

b. is a risky portfolio.

c. is the lowest point of tangency between the risk-free

rate and the efficient

frontier.

d. should be composed of stocks or bonds.: b. is a risky

portfolio.

44.

a. expected returns higher than the market.

b. required returns higher than the market return.

c. required returns lower than the market return.

d. no systematic risk.: required returns lower than the market

return.

their market values.

43.

53.

their market values.

54.

a. Single investors can affect the market by their buying and selling

decisions.

b. There is no inflation.

c. Investors prefer capital gains over dividends.

d. Different investors have different probability distributions..: There is no inflation.

55.

a. Markowitz portfolio theory is considered a three-parameter model.

b. Under the Markowitz model, no portfolio on the efficient frontier dominates any other portfolio on the efficient

frontier.

c. The Markowitz model is cumbersome to work with due to the large variance-covariance matrix needed for a set of

stocks.

d. All of the above are true.: a. Markowitz portfolio theory is considered a three-parameter model.

56.

Which of the following is the correct calculation for the required rate of

return under the CAPM?

a. beta (market risk premium)

b. beta + market risk premium

c. risk-free rate + risk premium

d. risk-free rate(market risk premium): risk-free rate + risk premium

57.

a. The risk-free rate

b. Expected inflation

c. Unanticipated deviations from expected inflation

d. Loss by fire at a company's manufacturing plant: Unanticipated deviations from expected inflation

58.

a. Investors recognize that all the assumptions of the CMT are unrealistic.

b. Investors recognize that all of the CMT assumptions are not unrealistic.

c. Investors are not aware of the assumptions of the CMT model.

d. Investors recognize the CMT is useless for individual investors.: Investors recognize that all of the CMT assumptions are not

unrealistic.

59.

Which of the following statements regarding portfolio risk and number of stocks is generally true?

a. Adding more stocks increases risk.

b. Adding more stocks decreases risk but does not eliminate it.

c. Adding more stocks has no effect on risk.

d. Adding more stocks increases only systematic risk.: b. Adding more stocks decreases risk but does not eliminate it.

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