Question 1

When risk-free borrowing and lending are added to the Markowitz analysis the efficient frontier becomes an upward-sloping straight line.

Accepted Answer

A) True 
 B)False

Question 2

The standard deviation of the portfolio consisting of 50 percent Y and 50 percent risk-free asset is:

Accepted Answer

A)   8 percent.
B)   9 percent.
C)   10 percent.
D)   11 percent.E) C) and D)
F) All of the above

Question 3

A portfolio with 80 percent of its assets in a S&P/TSX Composite Index fund and 20 percent in Treasury bills is most sensitive to:

Accepted Answer

A)   systematic risk.
B)   non-systematic risk.
C)   interest-rate risk.
D)   reinvestment risk.E) All of the above
F) A) and D)

Question 4

When using the Markowitz model, aggressive investors would select portfolios on the right end of the efficient frontier.

Accepted Answer

A) True 
 B)False

Question 5

Discuss the two decisions that are at issue in separation theorem?

Accepted Answer

The investment decision (which...

Question 6

According to the separation theorem,

Accepted Answer

A)   the efficient set with borrowing and lending is an arc.
B)   investors' indifference curves are linear.
C)   all investors have the same one-period time horizon.
D)   only one portfolio of risky assets is optimal for every investor when used in combination with risk-free borrowing and lending.E) B) and C)
F) A) and D)

Question 7

The asset allocation decision in a global setting deals with all of the following except:

Accepted Answer

A)   The percentage of portfolio funds invested in each country.
B)   Within each country, the percentage of funds invested in stocks, bonds, bills and other sundry assets.
C)   Within each of the major asset classes, the percentage invested in various types of bonds, exchange-listed stocks versus over-the-counter stocks and so forth.
D)   All of the above constitutes parts of the asset allocation decision in the global setting.E) A) and D)
F) A) and B) D

Question 8

In advance of an expected market decline, an investor reduces the holdings of the equity portion of her diversified portfolio and uses the proceeds to purchase money market securities. The investor is attempting to reduce her exposure towards:

Accepted Answer

A)   diversifiable risk.
B)   inflation risk.
C)   country/political risk.
D)   systematic risk.E) A) and B)
F) B) and C)

Question 9

Select the correct statement from among the following:

Accepted Answer

A)   When the total returns for a security are plotted against the total returns for a market index and a regression line fitted, this is the capital market line.
B)   Knowing the covariance between two securities and the standard deviation of each, the correlation coefficient can be calculated.
C)   With perfect negative correlation, two securities' returns have a perfect direct linear relationship to each other.
D)   The optimal portfolio for any investor occurs at the point of tangency between the lowest indifference curve and the efficient frontier.E) All of the above
F) C) and D)

Question 10

Which of the following statements regarding systematic risk is true?

Accepted Answer

A)   Only common stocks have systematic risk.
B)   Virtually all securities have systematic risk.
C)   It is impossible to measure systematic risk.
D)   Systematic risk is measured by the covariance.E) None of the above
F) A) and B)

Question 11

Under the Markowitz model, the total risk of a security consists of market risk and non-market (unique) risk.

Accepted Answer

A) True 
 B)False

Question 12

Regarding indifference curves, all of the following are true except:

Accepted Answer

A)   Indifference curves are assumed to be known by the investor.
B)   Indifference curves describe investor preferences for risk and return.
C)   Indifference curves show the intersection point where two curves or more curves overlap to generate the optimal portfolio.
D)   Indifference curves are upward sloping.E) All of the above
F) B) and D)

Question 13

Compare the traditional "tailored portfolio" approach of matching several investors' needs to several different risky portfolios and the approach suggested with the separation theorem of all investors holding the same risky portfolio (only in different amounts) and a risk-free asset.

Accepted Answer

The tailored portfolio approach is made ...

Question 14

Jacob has decided to invest in Treasury bills and a Markowitz portfolio that is determined by the tangent from the risk-free asset to the efficient frontier. The tangent portfolio on the efficient set has an expected return of 18 percent and a standard deviation of 15 percent. Treasury bills are returning 5 percent with a standard deviation of 0 percent (by definition). Jacob decides to invest 40 percent of his funds in T-bills and the rest in the selected portfolio. Calculate the expected return and standard deviation of his portfolio.

Accepted Answer

The answer of Jacob has decided to invest in Treasury...

Question 15

All attainable portfolios lie on the efficient frontier.

Accepted Answer

A) True 
 B)False  False

Question 16

A portfolio which lies above below the efficient frontier is described as:

Accepted Answer

A)   optimal.
B)   unattainable.
C)   dominant.
D)   inferior.E) B) and C)
F) A) and B)

Question 17

What does the "prudent expert rule" refer to?

Accepted Answer

This rule implies that an inve...

Question 18

Portfolio management is a continuous process consisting of all of the following parts except:

Accepted Answer

A)   developing and implementing an asset mix.
B)   designing an investment philosophy.
C)   minimizing the client's income taxes.
D)   monitoring portfolio performance.E) B) and D)
F) All of the above C

Question 19

The Markowitz model assumes most investors are:

Accepted Answer

A)   risk averse.
B)   risk neutral.
C)   risk seekers.
D)   risk moderators.E) A) and C)
F) B) and C)

Question 20

When risk-free investing and borrowing are introduced, the following changes occur:

Accepted Answer

A)   The new efficient frontier shifts in a parallel fashion downward to the previous efficient frontier.
B)   The new efficient frontier shifts in a parallel fashion upward to the previous efficient frontier.
C)   The new efficient frontier is no longer a curve as it was in the Markowitz analysis but is now linear.
D)   The efficient frontier remains the same.E) A) and B)
F) C) and D)

Exam 8: Portfolio Selection

When risk-free borrowing and lending are added to the Markowitz analysis the efficient frontier becomes an upward-sloping straight line.

Correct Answer
verified

The standard deviation of the portfolio consisting of 50 percent Y and 50 percent risk-free asset is:

Correct Answer
verified

A portfolio with 80 percent of its assets in a S&P/TSX Composite Index fund and 20 percent in Treasury bills is most sensitive to:

Correct Answer
verified

When using the Markowitz model, aggressive investors would select portfolios on the right end of the efficient frontier.

Correct Answer
verified

Discuss the two decisions that are at issue in separation theorem?

Correct Answer
verified
The investment decision (which...
View Answer

According to the separation theorem,

Correct Answer
verified

The asset allocation decision in a global setting deals with all of the following except:

Correct Answer
verified
D

In advance of an expected market decline, an investor reduces the holdings of the equity portion of her diversified portfolio and uses the proceeds to purchase money market securities. The investor is attempting to reduce her exposure towards:

Correct Answer
verified

Select the correct statement from among the following:

Correct Answer
verified

Which of the following statements regarding systematic risk is true?

Correct Answer
verified

Under the Markowitz model, the total risk of a security consists of market risk and non-market (unique) risk.

Correct Answer
verified

Regarding indifference curves, all of the following are true except:

Correct Answer
verified

Compare the traditional "tailored portfolio" approach of matching several investors' needs to several different risky portfolios and the approach suggested with the separation theorem of all investors holding the same risky portfolio (only in different amounts) and a risk-free asset.

Correct Answer
verified
The tailored portfolio approach is made ...
View Answer

Correct Answer
verified

All attainable portfolios lie on the efficient frontier.

Correct Answer
verified
False

A portfolio which lies above below the efficient frontier is described as:

Correct Answer
verified

What does the "prudent expert rule" refer to?

Correct Answer
verified
This rule implies that an inve...
View Answer

Portfolio management is a continuous process consisting of all of the following parts except:

Correct Answer
verified
C

The Markowitz model assumes most investors are:

Correct Answer
verified

When risk-free investing and borrowing are introduced, the following changes occur:

Correct Answer
verified

Exam 8: Portfolio Selection

When risk-free borrowing and lending are added to the Markowitz analysis the efficient frontier becomes an upward-sloping straight line.

Correct AnswerverifiedShow Answer

The standard deviation of the portfolio consisting of 50 percent Y and 50 percent risk-free asset is:

Correct AnswerverifiedShow Answer

A portfolio with 80 percent of its assets in a S&P/TSX Composite Index fund and 20 percent in Treasury bills is most sensitive to:

Correct AnswerverifiedShow Answer

When using the Markowitz model, aggressive investors would select portfolios on the right end of the efficient frontier.

Correct AnswerverifiedShow Answer

Discuss the two decisions that are at issue in separation theorem?

Correct AnswerverifiedThe investment decision (which...View AnswerShow Answer

According to the separation theorem,

Correct AnswerverifiedShow Answer

The asset allocation decision in a global setting deals with all of the following except:

Correct AnswerverifiedD

In advance of an expected market decline, an investor reduces the holdings of the equity portion of her diversified portfolio and uses the proceeds to purchase money market securities. The investor is attempting to reduce her exposure towards:

Correct AnswerverifiedShow Answer

Select the correct statement from among the following:

Correct AnswerverifiedShow Answer

Which of the following statements regarding systematic risk is true?

Correct AnswerverifiedShow Answer

Under the Markowitz model, the total risk of a security consists of market risk and non-market (unique) risk.

Correct AnswerverifiedShow Answer

Regarding indifference curves, all of the following are true except:

Correct AnswerverifiedShow Answer

Compare the traditional "tailored portfolio" approach of matching several investors' needs to several different risky portfolios and the approach suggested with the separation theorem of all investors holding the same risky portfolio (only in different amounts) and a risk-free asset.

Correct AnswerverifiedThe tailored portfolio approach is made ...View AnswerShow Answer

Correct AnswerverifiedShow Answer

All attainable portfolios lie on the efficient frontier.

Correct AnswerverifiedFalse

A portfolio which lies above below the efficient frontier is described as:

Correct AnswerverifiedShow Answer

What does the "prudent expert rule" refer to?

Correct AnswerverifiedThis rule implies that an inve...View AnswerShow Answer

Portfolio management is a continuous process consisting of all of the following parts except:

Correct AnswerverifiedC

The Markowitz model assumes most investors are:

Correct AnswerverifiedShow Answer

When risk-free investing and borrowing are introduced, the following changes occur:

Correct AnswerverifiedShow Answer

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The investment decision (which...
View Answer

Correct Answer
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Correct Answer
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D

Correct Answer
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Correct Answer
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Correct Answer
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Correct Answer
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The tailored portfolio approach is made ...
View Answer

Correct Answer
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Correct Answer
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False

Correct Answer
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Correct Answer
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This rule implies that an inve...
View Answer

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C

Correct Answer
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Correct Answer
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