Question 1

(5 points) By simply increasing the number of assets (e.g., assets > 30) in any portfolio, you can diversify your exposure to specific/idiosyncratic risk.

False.

True.

Question 2

(10) You have an equally weighted portfolio that consists of equity ownership in three firms. Firm A is trading at $23 per share and has a beta of 1.15; Firm B is trading at $16 per share with a beta of 1.60; Firm C is trading at $76 per share with a beta of 0.85. Assume a risk free rate of 2% and market return of 7%. If each stock has a standard deviation of 40% and the stocks have a correlation of 0.20 with each other, your portfolio's expected return is closest to

7%

10%

5%

8%

Question 3

(10 points) You have a portfolio that consists of*…show more content…*

Which portfolio has the lowest risk?

Portfolio I.

Portfolio II.

Portfolio III.

Portfolio IV.

Question 6

(10 points) The FTSE 100 is an index of the 100 largest market capitalization stocks traded on the London Stock Exchange. You think that 100 stocks are too much to keep up with, so you want to drop that number to 50. By doing this, what is the percentage drop in the UNIQUE relations between any two stocks in your portfolio that you will have to worry about? (No more than two decimals in the percentage drop, but do not enter the % sign.)

Answer for Question 6

Question 7

(10 points) The CAPM states that the realized/actual return on an asset in any period will be the risk free rate plus beta times the market risk premium.

False.

True.

Question 8

(10 points) Suppose CAPM works, and you know that the expected returns on Walmart and Amazon are estimated to be 12% and 10%, respectively. You have just calculated extremely reliable estimates of the betas of Walmart and Amazon to be 1.30 and 0.90, respectively. Given this data, what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (No more than two decimals in the percentage return, but do not enter the % sign.)

Answer for Question 8

Question 9

(10 points) The standard deviation of a portfolio's return is the weighted average of

(5 points) By simply increasing the number of assets (e.g., assets > 30) in any portfolio, you can diversify your exposure to specific/idiosyncratic risk.

False.

True.

Question 2

(10) You have an equally weighted portfolio that consists of equity ownership in three firms. Firm A is trading at $23 per share and has a beta of 1.15; Firm B is trading at $16 per share with a beta of 1.60; Firm C is trading at $76 per share with a beta of 0.85. Assume a risk free rate of 2% and market return of 7%. If each stock has a standard deviation of 40% and the stocks have a correlation of 0.20 with each other, your portfolio's expected return is closest to

7%

10%

5%

8%

Question 3

(10 points) You have a portfolio that consists of

Which portfolio has the lowest risk?

Portfolio I.

Portfolio II.

Portfolio III.

Portfolio IV.

Question 6

(10 points) The FTSE 100 is an index of the 100 largest market capitalization stocks traded on the London Stock Exchange. You think that 100 stocks are too much to keep up with, so you want to drop that number to 50. By doing this, what is the percentage drop in the UNIQUE relations between any two stocks in your portfolio that you will have to worry about? (No more than two decimals in the percentage drop, but do not enter the % sign.)

Answer for Question 6

Question 7

(10 points) The CAPM states that the realized/actual return on an asset in any period will be the risk free rate plus beta times the market risk premium.

False.

True.

Question 8

(10 points) Suppose CAPM works, and you know that the expected returns on Walmart and Amazon are estimated to be 12% and 10%, respectively. You have just calculated extremely reliable estimates of the betas of Walmart and Amazon to be 1.30 and 0.90, respectively. Given this data, what is a reasonable estimate of the risk-free rate (the return on a long-term government bond)? (No more than two decimals in the percentage return, but do not enter the % sign.)

Answer for Question 8

Question 9

(10 points) The standard deviation of a portfolio's return is the weighted average of

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