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Kiseok Nam

Sawyer Business School

Suffolk University

**Sample Questions for Portfolio Analysis
**

1. Which one of the following is a collection of possible risk-return combinations available from

portfolios consisting of individual assets?

A) minimum variance set

C) financial frontier

B) efficient portfolio

D) investment opportunity set

2. An efficient portfolio is a portfolio that does which one of the following?

A) offers the highest return for the lowest possible cost

B) provides an evenly weighted portfolio of diverse assets

C) eliminates all risk while providing an expected positive rate of return

D) lies on the vertical axis when graphing expected returns against standard deviation

E) offers the highest return for a given level of risk

3. Which one of the following is the locus of portfolios that provides the maximum return for a given

standard deviation?

A) minimum variance portfolio

C) correlated market frontier

B) efficient frontier

D) diversified portfolio line

4. You own a stock which is expected to return 14 percent in a booming economy and 9 percent in a

normal economy. If the probability of a booming economy decreases, your expected return will:

A) decrease.

C) increase.

B) remain constant.

D) either remain constant or increase.

5. Where does the minimum variance portfolio lie in respect to the investment opportunity set?

A) lowest point

C) highest point

B) most leftward point

D) most rightward point

6. Which one of the following statements about efficient portfolios is correct?

A) Any efficient portfolio will lie below the minimum variance portfolio when the expected portfolio

return is plotted against the portfolio standard deviation.

B) An efficient portfolio will have the lowest standard deviation of any portfolio consisting of the

same two securities.

C) There are multiple efficient portfolios that can be constructed using the same two securities.

D) Any portfolio mix consisting of only two securities will be an efficient portfolio.

E) There is only one efficient portfolio that can be constructed using two securities.

7. You are graphing the portfolio expected return against the portfolio standard deviation for a portfolio

consisting of two securities. Which one of the following statements is correct regarding this graph?

A) Risk-taking investors should select the minimum variance portfolio.

B) Risk-averse investors should select the portfolio with the lowest rate of return.

C) Some portfolios will be efficient while others will not.

D) The minimum variance portfolio will have the lowest portfolio expected return of any of the

possible portfolios.

E) All possible portfolios will graph as efficient portfolios.

1

50 12. Unsystematic risk A) is also known as nondiversifiable risk. For purposes of maximum portfolio diversification.Dr. B) is system-wide risk. C) Coefficient of variation D) Real rate of return 11. unique risk 2 . You are graphing the investment opportunity set for a portfolio of two securities with the expected return on the vertical axis and the standard deviation on the horizontal axis.50 D) Security D with a correlation coefficient of 0. A portfolio that belongs to the efficient portfolios will have which one of the following characteristics? Assume the portfolios are comprised of five individual securities. C) an equal reduction in risk and return. B) a reduction in risk. The primary benefit of diversification is: A) an increase in expected return. Kiseok Nam Sawyer Business School Suffolk University 8. The type of risk that can be diversified away is called ________. the opportunity set will appear as ________. unsystematic risk D) total risk. D) diversification has no real benefit. systematic risk B) diversifiable risk.0 B) Security B with a correlation coefficient of 0. A) nondiversifiable risk. D) is equal to 2 times the systematic risk. The terms ________ and ________ mean the same thing. A) Unsystematic risk B) Firm-specific risk C) Systematic risk D) Diversifiable risk 16. If the correlation coefficient of the two securities is +1. 15. A) unsystematic risk C) systematic risk B) nondiversifiable risk D) system-wide risk 14. which for the following would provide the greatest diversification? A) Security A with a correlation coefficient of -0. The formula A) Sharpe ratio B) Treynor measure is used to calculate the _____________. unsystematic risk C) diversifiable risk. 13. ________ is risk that cannot be diversified away. A) conical shape C) hyperbole B) linear with an upward slope D) horizontal line 9. C) can be diversified away. A) the lowest return for any given level of risk B) the largest number of potential portfolios that can achieve a specific rate of return C) the largest number of potential portfolios that can achieve a specific level of risk D) a positive rate of return and a zero standard deviation E) the lowest risk for any given rate of return E (rP ) r f P 10.0 C) Security C with a correlation coefficient of -0.

10% D) 6.69% E(R) = (. Which one of these portfolios CANNOT be a Markowitz efficient portfolio? A) A B) B C) C D) D E) E 20.10 C) 6.80% C) -6. A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills were paying 4.4)2 = 3.25 19.35 × 14) + (.84 3 D) 4.5%. Kiseok Nam Sawyer Business School 17.10 .84 E(R) = (.07% B) -7.70% E) -5.Dr. You combine a set of assets using different weights such that you produce the following results.40 × 16) + (.95 percent 22.22 B) 0.65 × 8) = 10. A) correlation B) covariance C) variance Suffolk University D) beta 18.60 × 19) = 17.15 percent. What is the variance of the expected returns on this stock? A) 1.4. This portfolio had a Sharpe ratio of ____.4 Var = .60 × -22) = -6.88% B) 5. The measure of systematic risk is called ________. The risk-free rate is 4.17.03 .60 C) 0.4)2 + .60(19 . What is the expected risk premium on this stock given the following information? A) 5.42 D) 0.17.80% D) -5.40(15 .23% Risk premium = 10.40 × 15) + (. What is the expected return on this stock given the following information? A) -8.22% 21. A) 0.56 C) 3.95% E(R) = (.21 B) 1.15 = 5.

Kiseok Nam Sawyer Business School 4 Suffolk University .Dr.

60(15%) + . A and B.77 percent D) 5.8%) = 12.40(20%) = 12. Travis has a portfolio consisting of two stocks.76% B) 12.556 WB = ($53.900)/$53.8% E(RP-Portfolio) = (. Kiseok Nam Sawyer Business School Suffolk University 23.80)(12.98% C) 13.44% D) 13.33% B) 4.55 × 22) + (.73(19 . What is the standard deviation of the returns on this stock? A) 3.3 E(RP-Recession) = (.800 = . Stock A is worth $23.79% .6% E(RP-Normal) = .45 × 8) = 11.77% 24.800. What is the expected rate of return on this portfolio? A) 12.31 Std Dev = √33.245 D) 0.49)2 + .4 E(RP-Normal) = (.55 × 14) + (.257 WB = (150 × $33)/[(200 × $48) + (150 × $33) + (350 × $21)] = . What is the expected rate of return on this portfolio? A) 9. which is valued at $53. You have a portfolio which is comprised of 55 percent of stock A and 45 percent of stock B.25 5 D) 11.551 D) 0.45 × 14) = 18.27(6 .900.62% C) 5.01% E(R) = (.76% 27.20)(12.226 B) 0.5558 26.60(8%) + .800 .6%) + (.55 × -10) + (. A portfolio consists of the following securities.$23.2260 25.40(9%) = 12.85% E(RP-Boom) = .49)2 = 33.528 B) 0.Dr.03% E(RP-Boom) = (.543 C) 0. What is the portfolio weight of stock B? A) 0.15.239 C) 0.15.67% B) 9. What is the portfolio weight of stock B? A) 0. You have a portfolio which is comprised of 60 percent of stock A and 40 percent of stock B.31 = 5.73 × 19) = 15.88% C) 10.49 Var = .45 × 5) = -3.27 × 6) + (.

60(14. The correlation between stock A and stock B is .212] + [2 × (1 .60) × . What is the variance of this portfolio? A) 203.50% Var(Portfolio) = .0 .62 × 11.60 × .97% C) 7.402 × .45% Var_Port = [(1 .60)2 × .8) + (.67% B) 9. What is your portfolio variance? A) 0.8% E(RP-Normal) = (.01214 C) 0.21 × . Roger has a portfolio comprised of $8..87% B) 15.000 of stock B.40] = .40 × . Stock A has a standard deviation of 15% per year and stock B has a standard deviation of 21% per year.024314 Std Dev_Port = √.30] = .28 × 22%) = 14.30.000 of stock A and $12.024012 = 15.8 B) 268.15 × . The correlation between stock A and stock B is .67% 28. What is the approximate weight of the stock fund in the minimum variance portfolio? A) 11% B) 15% C) 21% D) 24% 6 .72 × 12%) + (.28 × -44%) = -20.Dr.50% 32.08 × .01329 D) 0. A stock fund has a standard deviation of 17% and a bond fund has a standard deviation of 8%.602 × .60 × 14.15 × .50)2 + .1 C) 290. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 40%.50)2 = 306..152] + [. What is the standard deviation of this portfolio? A) 4.40.40)2 × .4) + (..01143 B) 0.9 E(RP-Boom) = (.25) = 9.50% C) 16. The correlation of the two funds is . Stock A has a standard deviation of 15% per year and stock B has a standard deviation of 8% per year..18 × 18. You have a portfolio of these two stocks wherein stock B has a portfolio weight of 60%.24.011428 31.20 × -3.40(-21.96% E(RP-Portfolio) = (.72 × -12%) + (.96) = 0. Kiseok Nam Sawyer Business School Suffolk University E(RP-Portfolio) = (.8 .082] + [2 × (1 .40 × -20.9 D) 306.91% D) 17.152] + [.83% 30.3) + (.. You have a portfolio which is comprised of 72% of stock A and 28% of stock B.91 29. What is your portfolio standard deviation? A) 14.01437 Var_Port = [(1 .23% D) 8..40) × .

60 D) 0. The expected return on the minimum-variance portfolio is approximately _________.12 B) 0.1)(0.77 Corr = 0. If the covariance of returns on A and B is . the covariance of returns on A and B is _________. The standard deviation of return is 20% for stock A and 15% for stock B.0030.5)(0.05.Dr.05)=0. A) 0% B) 6% C) 12% D) 17% 7 . A and B. If the correlation coefficient between the returns on A and B is -.04.50. An investor can design a risky portfolio based on stocks A & B.10.0020 C) 0.41% 36. The standard deviation of return on investment A is . A) 0.0447 B) -0. The correlation coefficient between the returns on A and B is 0. A) -0. while the standard deviation of return on investment B is . A) 10% B) 13. The standard deviation of return on stock A is 20%.36 C) 0.04)=-0.10. The correlation coefficient between the returns on A and B is 0%. Kiseok Nam Sawyer Business School Suffolk University 33. while the standard deviation of return on investment B is . The standard deviation of return on investment A is .0030/(0. Compute the standard deviation of return on the minimum-variance portfolio.1)(0.60 34.6% C) 15% D) 19. while the standard deviation on stock B is 15%.0020 D) 0. the correlation coefficient between the returns on A and B is _________.0447 Cov = -(0. An investor can design a risky portfolio based on two stocks.0020 35.

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