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MD FIN 340 – Which of the following statements

Question NumberQuestion1Which of the following statements concerning the Markowitz efficient frontier is correct?A portfolio that offers the highest rate of return with the lowest degree of risk is on the efficient frontier.A portfolio that offers the lowest rate of return for a higher degree of risk is on the efficient frontier.A portfolio that offers the lowest degree of risk for a given rate of return is above the efficient frontier.A portfolio that offers the highest rate of return for a given degree of risk is on the efficient frontier.2The goal of asset alloction is to reduce risk through diversification by having exposure to a variety of investments that perform differently during different market conditions. According to Schwab, in recent years the following has changed:Assets are more correlatedLess external shocksBond yields are lowExpected stock retruns are lowerI, II, IIII, III, IVI, II, IVII, III, IV3Which of the following statements concerning beta coefficients is (are) correct?Investors who tend to be risk averse should have portfolio made up mostly of high-beta coefficient securitiesBeta coefficients of particular securities change over time.Beta coefficients are constructed based on past data.(I) only(I) and (III) only(I) and (II) only(II) and (III) only4List three advantages of asset allocationSmooths out the ups and downs of the marketShows that is pays to have your eggs in one baseketAllows for diversificationHelps to mitigate downside risk(I), (II), (III)(I), (III), (IV)(II), (III), (IV)(I), (II), (IV)5Which of the following is not likely to be found in the portfolio of a typical money market mutual fund?Collateralized mortgage obligations (CMOs)U.S. Treasury billsNegotiable certificates of depositCommercial paper6According to Harry Markowitz, the only “free lunch in finance” is:When assets move in harmony, then a diversified portfolio will have less risk.A diversified portfolio cannot deliver more than the sum of its parts.Perfectly correlated individuals assets provide this “free lunch”.Diversification can deliver benefits over time at no additional cost .7Which of the following statements concerning the standard deviation of a stock’s rate of return is (are) correct?The standard deviation of a stock’s rate of return reflects both the systematic and unsystematic risks associated with the stock.Approximately 68% of the rates of return on the stock will fall within plus or minus one standard deviation of the average rate of return(1) only(2) onlyBoth (1) and (2)Neither (1) nor (2)8Once a strategic asset allocation is in place, an investor can make “tactical” adjustments to take advantage of market opportunities or to avoid risks. Which of the following is not an example of tactical shifts:Time the market in the short-termOverweigh certain asset classesUnderweight certain asset classesBuy or sell due to tax considerations___________________________________________________________Questions #9 and #10 are based on the following facts:Assume a four-stock portfolio of stocks with following characterisitcs:Stock Percentage of Total Beta Rate of ReturnK 20% 0.9 -3.6%L 25% 1.2 7.0%M 30% 1.4 9.0%N 25% 1.5 -2.2%9Which of the following is the weighted average beta for the above portfolio?1.2751.7501.8002.25010What is the standard deviation of the above portfolio?3.116.376.92Answer cannot be determined from the information given11According to Schwab, a “goal driven” modernized asset allocation model for individual investors includes the following:Absolute returnInflation hedgeAchievement of a specific targetRisk reductionI, II, IIII, III, IVI, II, IVII, III, IV12According to Schwab, in reponse to changing economic conditions, asset allocation has evolved from the typical stocks, bonds and cash blends popular during the 1990s. Modern asset allocation now encompasses non-traditional asset classes, such as commodities. TrueFalse

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