FiltersDone

Question type

Essay

Multiple Choice

Short Answer

True False

Matching

Exam 6: Efficient Diversification

Show Answer

Share

---

All types

Filters

Study FlashcardsPractice ExamLearn

Question 41

Multiple Choice

Review LaterAdd Note

Review Later

To eliminate the bias in calculating the variance and covariance of returns from historical data the average squared deviation must be multiplied by _________.

A) n/(n - 1)
B) n * (n - 1)
C) (n - 1) /n
D) (n - 1) * n

E) B) and C)
F) A) and D)

Correct Answer

verified

Show Answer

Question 42

Multiple Choice

Review LaterAdd Note

Review Later

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated.The global minimum variance portfolio has a standard deviation that is always _________.

A) equal to the sum of the securities standard deviations
B) equal to -1
C) equal to 0
D) greater than 0

E) C) and D)
F) B) and D)

Correct Answer

verified

Show Answer

Question 43

Multiple Choice

Review LaterAdd Note

Diversification is most effective when security returns are _________.

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 10%. -The standard deviation of return on the optimal risky portfolio is _________.

According to Tobin's separation property,portfolio choice can be separated into two independent tasks consisting of __________ and __________.

Reward-to-variability ratios are ________ on the ________ capital market line.

An investor can design a risky portfolio based on two stocks,A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 15%. The expected return on stock A is 20% while on stock B it is 10%. The correlation coefficient between the return on A and B is 0%. The expected return on the minimum variance portfolio is approximately _________.

A portfolio of stocks fluctuates when the treasury yields change.Since this risk can not be eliminated through diversification,it is called __________.

What is the standard deviation of a portfolio of two stocks given the following data? Stock A has a standard deviation of 30%.Stock B has a standard deviation of 18%.The portfolio contains 60% of stock A and the correlation coefficient between the two stocks is -1.0.

A measure of the riskiness of an asset held in isolation is ____________.

Diversification can reduce or eliminate __________ risk.

Rational risk-averse investors will always prefer portfolios _____________.

The part of a stock's return that is systematic is a function of which of the following variables? I.Volatility in excess returns of the stock market II.The sensitivity of the stock's returns to changes in the stock market III.The variance in the stock's returns that is unrelated to the overall stock market

Many current and retired Enron Corp.employees had their 401k retirement accounts wiped out when Enron collapsed because ___.

Investing in two assets with a correlation coefficient of -0.5 will reduce what kind of risk?

You find that the annual standard deviation of a stock's returns is equal to 25%.For a 3 year holding period the standard deviation of your total return would equal _______.

Beta is a measure of security responsiveness to _________.

The beta of this stock is ____.

The stock is ______ riskier than the typical stock.

____ percent of the variance is explained by this regression.