Which two of the following options correctly give rules for portfolio theory? A) Portfolio returns are a weighted average of the expected returns on the individual investments. B) Portfolio standard deviation is greater than the weighted average risk of the individual investments, except for perfectly negatively correlated investments. C) Portfolio standard deviation is less than the weighted average risk of the individual investments, except for perfectly positively correlated investments. D) Expected returns are a weighted average of the portf

Which two of the following options correctly give rules for portfolio theory? A) Portfolio returns are a weighted average of the expected returns on the individual investments. B) Portfolio standard deviation is greater than the weighted average risk of the individual investments, except for perfectly negatively correlated investments. C) Portfolio standard deviation is less than the weighted average risk of the individual investments, except for perfectly positively correlated investments. D) Expected returns are a weighted average of the portf

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 6P

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Question #1. Portfolio theory tends to define risky investments in terms of just two factors: expectedreturns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life? Question #2. ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? Question #3. What can be said about the portfolio that is represented by any point along the efficientfrontier of risky investment…
Which of the following statements regarding non-systematic risk, systematic risk and total risk is/are true? Select one or more:a. As the number of assets within a portfolio increases, the total risk of a portfolio will go to zero.b. A riskfree asset must have zero non-systematic risk.c. A well diversified portfolio must have zero systematic riskd. Under the Capital Asset Pricing Model (CAPM).an asset with zero systematic risk must have expected return equal to the riskfree rate.
The standard deviation of a portfolio Group of answer choices -is not a weighted average of the standard deviations of the individual securities held in that portfolio. -cannot be less than the weighted average of the standard deviations of the individual securities held in that portfolio. -measures the amount of diversifiable risk inherent in the portfolio. -is a measure of that portfolio's systematic risk. -serves as the basis for computing the appropriate risk premium for that portfolio..
Question #1. Portfolio theory tends to define risky investments in terms of just two factors: expected returns and variance (or standard deviation) of those expected returns. What assumptions need to be made about investors and the expected investment returns (one assumption in each case) to justify this ‘two-factor’ approach? Are these assumptions justified in real life? ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? What can be said about the portfolio that is represented by any point along the efficient frontier of risky investment portfolios? and What is…
22) Which of the following statement(s) is/ are correct? Select one or more: Portfolio standard deviation is usually less than the weighted average of the standard deviation of the constituent investments. Portfolio standard deviation is usually greater than the weighted average of the standard deviation of the constituent investments. For perfectly positive correlated investments portfolio standard deviation is equal to the weighted average of the standard deviation of the constituent investment. For perfectly negatively correlated investments portfolio standard deviation is equal to the weighted average of the standard deviation of the constituent investment.
If a portfolio has a positive investment in every asset, can the standard deviation of the portfolio be less than sum of the individual asset's standard deviations in the portfolio? Explain
What are the the key concepts (e.g., the standard deviation of the portfolio is less than the weighted average of the standard deviations of the stocks in the portfolio)
Question #1. ‘The expected return from a portfolio of securities is the average of the expected returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ ‘The expected standard deviation of returns from a portfolio of securities is the average of the standard deviations of returns of the individual securities that make up the portfolio, weighted by the value of the securities in the portfolio.’ Are these statements correct? What can be said about the portfolio that is represented by any point along the efficient frontier of risky investment portfolios? and What is meant by ‘two-fund separation’? ‘The capital asset pricing model tells us that a security with a beta of 2 will be expected to yield a return twice that of a security whose beta is 1.’ Is this statement true?
In measuring the performance of a portfolio, the time-weighted rate of return is superior to the dollar-weighted rate of return because:a. When the rate of return varies, the time-weighted return is higher.b. The dollar-weighted return assumes all portfolio deposits are made on day 1.c. The dollar-weighted return can only be estimated.d. The time-weighted return is unaffected by the timing of portfolio contributions and withdrawals.
Mean returns for portfolios are calculated by taking the weighted average of the mean returns for each investment in the portfolio. Why won’t this approach work calculate the standard deviation of portfolio returns?
When a portfolio consists of only a risky asset and a risk-free asset, increasing the fraction of the overall portfolio invested in the risky asset will a. Increase the expected return and standard deviation of the portfolio b. Increase the standard deviation of the portfolio c. Decrease the standard deviation of the portfolio d. Increase the expected return of the portfolio
Select all that are true with respect to the historical risk-return tradeoff for portfolios, and for individual stocks. Group of answer choices For portfolios, the relation between risk and return is positive and quite strong For individual stocks, the relation between risk and return is positive and stronger than for portfolios The relation between risk and return is stronger for portfolios than it is for individual stocks You get a better risk-return tradeoff if you put assets together in a portfolio