1. Choose the correct answer about the return of assets.
A. Investors prefer always the assets with more variance.
B. Investors prefer always those assets with larger expected value. C. Ceteris paribus, the larger the variance, the better.
D. Ceteris paribus, the smaller the expected value, the better.
E. Ceteris paribus, the smaller the variance, the better.
2. An investor knows the following about assets X and Y: E[rX]=0, Var(rX)=0.2, E[rY]=0.12, Var(rY)=0.4. If we know she can invest only in X or only in Y, but not in both, what is the correct statement?
A. She will invest only in Y.
B. She will invest only in X.
C. It is the same for her to invest in X or in Y.
D. She will not invest her money in X nor in Y.
E. Without knowing the investor's preferences, we cannot state which is better.
3. One investor knows the following about assets X and Y: E[rX]=0.10, Var(rX)=0.10, E[rY]=0.10, Var(rY)=0. If we know that she can invest only in one of them, but not in both, what is the correct statement?
A. She will invest only in Y.
B. She will invest only in X.
C. It is the same for her to invest in X or in Y.
D. She will not invest her money in X nor in Y.
E. Without knowing the investor's preferences, we cannot state which is better.
4. Suppose you can invest in asset X and in asset Y, and the current value of each is 110. Suppose that E(Xt=1)=120 and E(Yt=1)=140. If you buy a portfolio composed by 20 units of X and 30 units of Y, calculate the expected return and the expected rate of return of the portfolio. Hint: Follow Example 5.
A. $6100; 8%
B. $6200; 12%
C. $6300; 16%
D. $6600; 20%
E. $6700; 24%