Investment & Portfolio Analysis Test 2 Study Guide
A value of zero means that the returns are independent.
Which of the following statements about the correlation coefficient is FALSE?
stocks, bonds, foreign securities options, and coins
Which of the following would most closely resemble the true market portfolio?
no other portfolio offers higher expected returns with the same risk. no other portfolio offers lower risk with the same expected return.
A portfolio is considered to be efficient if
What is the beta of the market portfolio of risky assets?
All of the following questions remain to be answered in the real world EXCEPT
return and risk.
An individual investor's utility curves specify the tradeoffs he or she is willing to make between
market risk.
A 1994 study by Burmeister, Roll, and Ross defined all of the following risk factors EXCEPT
equal to one because it has only systematic risk.
A completely diversified portfolio would have a correlation with the market portfolio that is
benchmark error.
A portfolio manager uses two different proxies for the market portfolio, the S&P 500 index, and the MSCI World index. Differences in the manager's portfolio performance resulting from the different market portfolios is referred to as
the two variables move in the same direction.
A positive covariance between two variables indicates that
the expected change in the bond credit spread.
A study by Chen, Roll, and Ross in 1986 examined all of the following factors in applying the Arbitrage Pricing Theory (APT) EXCEPT
investors can have different time horizons, daily, weekly, annual, or some other period.
All of the following are assumptions of the Capital Asset Pricing Model (CAPM) EXCEPT
investors base decisions solely on expected return and time.
All of the following are assumptions of the Markowitz model EXCEPT
covariance.
All of the following are common risk measurements EXCEPT
The ten portfolios must have excess returns not significantly different from zero.
Assume that you are embarking on a test of the small-firm effect using APT. You form 10 size-based portfolios. Which of the following finding would suggest that there is evidence supporting APT?
efficient frontier.
Given a portfolio of stocks, the envelope curve containing the set of best possible combinations is known as the
band of securities.
If the assumption that there are no transaction costs is relaxed, the SML will be a
confidence risk.
In a macroeconomic-based risk factor model, the following factor would be one of many appropriate factors:
return difference between small capitalization and large capitalization stocks.
In a microeconomic (or characteristic)-based risk factor model, the following factor would be one of many appropriate factors:
unanticipated changes in investors' desired time to receive payouts.
In a multifactor model, time horizon risk represents
All of these are correct. unexpected changes in inflation consumer confidence yield curve shifts unexpected changes in real GDP
One approach for using multifactor models is to use factors that capture systematic risk. Which of the following is NOT a common factor used in this approach?
all deviations below the mean.
Semivariance, when applied to portfolio theory, is concerned with
None of these are correct (that is, all are assumptions of the Markowitz model).
The Markowitz model is based on several assumptions regarding investor behavior. Which of the following is NOT such any assumption?
risky assets.
The market portfolio consists of all
absolute
The purpose of calculating the covariance between two stocks is to provide a(n) ____ measure of their movement together.
investing, financing
The separation theorem divides decisions on ____ from decisions on ____.
One is related to the market portfolio, and the other is not.
Which of the following is NOT a major difference between the capital market line (CML) and the capital asset pricing model (CAPM)?
homogeneous expectations and fixed planning periods
Which of the following is NOT a relaxation of the assumptions for the CAPM?