Investment management questions

Question

Need assistance with the given Investment Management Questions:

Question 1. The risk of a portfolio consisting of two uncorrelated assets will be:

• equal to zero.
• greater than the risk of the least risky asset but less than the risk level of the more risky asset.
• greater than zero but less than the risk of the more risky asset.
• equal to the average of the risk level of the two assets.

Question 2. The beta of the market is:

• -1.0.
• 0.0.
• 1.0.
• undefined.

Question 3. Portfolio objectives should be established independently of tax considerations.

• True
• False

Question 4. A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42.

• True
• False

Question 5. Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.

• True
• False

Question 6. The Capital Asset Pricing Model (CAPM) includes which of the following in its base assumptions?

Investors should earn a minimum retun rate equal to the risk-free rate.
Investors in the market should earn a return greater than the return on the overall market.
Investors shoud be awarded for the amount of risk they assume.
Investors should earn a return located above the Security Market Line.

• I and III only
• II and IV only
• I, II and III only
• I, III, and IV only

Question 7. To obtain the maximum reduction in risk, an investor should combine assets that:

• are negatively correlated.
• are uncorrelated.
• have a correlation coefficient of positive one.
• have a correlation coefficient of negative one.

Question 8. Standard deviation is a measure that indicates how the price of an individual security responds to market forces.

• True
• False

Question 9. Traditional portfolio management:

• concentrates on only the most recent "hot" sectors of the market.
• typically centers on interindustry diversification.
• includes only diversified bonds in a laddered portfolio.
• is based on statistical measures to develop the portfolio plan.

Question 10. Amanda has the following portfolio of assets.

Poporation of
Stock Portfolio Beta
ABC $7,000 .85
DEF $12,000 1.25
GHI $6,000 1.10

What is the beta of Jonathan's portfolio?

• 1.06
• 1.10
• 1.13
• 3.02

Question 11. A measure of systematic risk:

• standard deviation
• historical average rate of return
• beta
• variance

Question 12. Diversifiable risk is also called systematic risk.

• True
• False

Question 13. Studies have shown that investing in different industries as well as different countries reduces portfolio risk.

• True
• False

Question 14. Which of the following factors comprise the CAPM?

I. divendend yield
II. risk-free rate of return
III. the expected rate of return on the market
IV. risk premuim for the firm

• I and III only
• II and IV only
• III and IV only
• II, III and IV only

Question 15. Security A has a beta of .99, security B has a beta of 1.2, and security C has a beta of -1.0. This information indicates that

• security A has the highest degree of market risk.
• security B has 20% more systematic risk than the market.
• security C has the highest degree of market risk.
• security C would be the best investment if a strong bull market is expected.

Question 16. The market rate of return increased by 8% while the rate of return on XYZ stock increased by 4%. The beta of XYZ stock is:

• -2.0.
• -0.40.
• 0.50.
• 2.0.

Question 17. A coefficient of determination of 0.6 means that 40% of the variation in a security's return is related to factors other than the security's relationship to the market.

• True
• False

Question 18. A portfolio that offers the lowest risk for a given level of return is known as an efficient portfolio.

• True
• False

Question 19. In designing a portfolio, the only relevant risk is:

• total risk.
• unsystematic risk.
• event risk.
• nondiversifiable risk.

Question 20. The basic theory linking risk and return is the Capital Asset Pricing Model.

• True
• False

Question 21. A stock's beta value is a measure of:

• interest rate risk.
• total risk.
• systematic risk.
• diversifiable risk.

Question 22. The investment choice of an individual is affected by:

I. their tolerance for risk
II. their prior investment experience
III. their marginal tax braket
IV. the stability of their income

• II and III only
• II, III and IV only
• I, III and IV only
• I, II, III and IV

Question 23. The optimal portfolio for an individual investor is represented by the point that lies on the:

• lowest possible utility curve and connects to the efficient frontier.
• utility curve which is just tangent to the right side of the feasible set of risk-return options.
• utility curve which is just tangent to the efficient frontier.
• utility curve which represents the highest possible rate of return within the feasible set of risk-return options.

Question 24. Portfolio objectives should be established before beginning to invest.

• True
• False

Question 25. Market return is the average return on a large sample of stocks such as those in the Standard & Poor's 500 Stock Composite Index.

• True
• False

Question 26. Risk can be totally eliminated by combining two assets that are perfectly positively correlated.

• True
• False

Question 27. Historical betas are always reliable predictors of future return fluctuations.

• True
• False

Question 28. When the Capital Asset Pricing Model is depicted graphically, the result is the:

• standard deviation line.
• coefficient of variation line.
• security market line.
• alpha-beta line.

Question 29. The best stock to own when the stock market is at a peak and is expected to decline in value is one with a beta of:

• +1.5.
• +1.0.
• -1.0.
• -0.5.

Question 30. Beta measures diversifiable risk while standard deviation measures systematic risk.

• True
• False