fina 3331 test 2 review
A major difference between real and nominal returns is that: a. real returns adjust for inflation, and nominal returns do not. b. real returns use actual cash flows, and nominal returns use expected cash flows. c. real returns adjust for commissions, and nominal returns do not. d. real returns show after-tax returns, and nominal returns show before-tax returns.
a
A number of prominent observers expect the equity risk premium in the future to be: a. considerably lower than that of the past. b. considerably higher than that of the past. c. very similar to the historical average. d. very similar to the recent value.
a
An index commonly used as a proxy for developed market international equities is the: a. MSCI EAFE Index. b. MSCI Emerging Markets Index. c. Russell 1000 Index. d. FTSE NAREIT Index.
a
As the dollar falls, a. foreign investors owning U.S. stocks suffer. b. U.S. investors owning U.S. stocks suffer. c. U.S. investors owning foreign stocks suffer. d. foreign investors owning foreign stocks suffer.
a
Assume an investor purchases a bond when the Euro is quoted at $0.96 per Euro and sells the bond when the Euro is quoted at $1.12 per Euro. Relative to the dollar, the Euro has: a. appreciated, and the investor has gained from the currency move. b. appreciated, and the investor has lost from the currency move. c. depreciated, and the investor has gained from the currency move. d. depreciated, and the investor has lost from the currency move.
a
Given the following probability distribution, calculate the expected return of security XYZ. Security XYZ's Potential return - Probability 20% - 0.3 30% - 0.2 -40% - 0.1 50% - 0.1 10% - 0.3 a. 16 percent b. 22 percent c. 25 percent d. 18 percent
a
If a certain stock has a beta greater than 1.0, it means: a. the stock's return has greater than average sensitivity to the market return. b. the stock would be an attractive holding during a bear market. c. an investor will earn a higher return on the stock than the market returns. d. the stock is less risky than the market portfolio.
a
If interest rates are expected to rise, you would expect: a. bond prices to fall more than stock prices. b. bond prices to rise more than stock prices. c. stock prices to fall more than bond prices. d. stock prices to rise and bond prices to fall.
a
If markets are efficient and in equilibrium: a. all securities would lie on the SML. b. any security that plots below the SML would be considered undervalued. c. any security that plots above the SML would be considered overvalued. d. no security would lie on the SML.
a
In order to determine the expected return of a portfolio, all of the following must be known except: a. the probabilities of expected returns of the individual assets. b. the weight of each individual asset in the portfolio. c. the expected return of each individual asset. d. the variance of return of each individual asset and correlation of returns between assets.
a
Over the past 50 years, which of the following financial assets showed the greatest amount of price volatility, as measured by standard deviation? a. Small-cap stocks b. Large-cap stocks c. Treasury bonds d. Treasury bills
a
Owning two securities instead of one will not improve a portfolio's risk-return tradeoff if the two securities are: a. perfectly positively correlated with each other. b. perfectly independent of each other. c. perfectly negatively correlated with each other. d. of the same category, e.g. blue chips.
a
Portfolios lying on the upper right portion of the efficient frontier are likely to be chosen by: a. aggressive investors. b. conservative investors. c. risk-averse investors. d. defensive investors.
a
Select the incorrect statement regarding the CML. a. The CML is an equilibrium relationship for efficient portfolios and individual securities. b. The CML represents the risk-return tradeoff for efficient portfolios. c. The intercept of the CML is the reward to investors for deferring consumption. d. The CML relies on standard deviation as the measure of risk.
a
The Markowitz model assumes that investors are "risk averse", which means that they: a. will not take a "fair gamble." b. will take a "fair gamble." c. will take a "fair gamble" fifty percent of the time. d. will never assume investment risk.
a
The SML can be used to analyze the relationship between risk and required return for: a. all assets. b. only inefficient portfolios. c. only efficient portfolios. d. only individual securities.
a
Under the separation theorem, investors should: a. hold the same portfolio of risky assets. b. have different optimal portfolios of risky assets. c. hold the same percentage of their portfolio in risk-free securities. d. borrow at the risk-free rate to achieve a lower risk portfolio.
a
When the covariance is positive, the correlation will be: a. positive. b. negative. c. zero. d. impossible to determine.
a
Which of the following is not a characteristic of the risk factors in the APT? a. The factors must be readily observable in risk/return space. b. Each factor must have a pervasive influence on stock returns. c. The factors must influence expected return. d. Factors must be unpredictable.
a
Which of the following is not true regarding Markowitz portfolio theory? The Markowitz model: a. is considered a three-parameter model. b. implies that no portfolio on the efficient frontier dominates any other portfolio on the efficient frontier. c. is cumbersome to work with due to the large variance-covariance matrix needed for a set of stocks. d. generates an entire set, or efficient frontier, of portfolios.
a
Which of the following portfolios has the least reduction of risk? a. A portfolio with securities all having positive correlation with each other. b. A portfolio with securities all having zero correlation with each other. c. A portfolio with securities all having negative correlation with each other. d. A portfolio with securities all having skewed correlation with each other.
a
Which of the following statements about the CML is most accurate? The CML can be downward sloping: a. ex post. b. when investors expect the stock market to decline. c. when the SML is upward sloping. d. when the risk premium for the market is very high.
a
Which of the following statements regarding indifference curves is not true? a. Investors have a finite number of indifference curves. b. The greater the slope of the indifference curve, the greater the risk aversion of the investor. c. The indifference curves for all risk-averse investors will be upward sloping. d. Indifference curves cannot intersect.
a
Which of the following would not be considered a source of systematic risk? a. A hostile takeover b. An increase in inflation c. A decrease in GDP d. A panic on Wall Street
a
With a discrete probability distribution: a. a probability is assigned to each possible outcome. b. possible outcomes are constantly changing. c. an infinite number of possible outcomes exist. d. there is no variance.
a
Adding 1 to return produces the: a. arithmetic mean. b. return relative. c. cumulative wealth index. d. geometric mean.
b
An indifference curve shows: a. the one most desirable portfolio for an investor. b. all combinations of portfolios that are equally desirable to an investor. c. all combinations of portfolios that are equally desirable to all investors. d. the one most desirable portfolio for all investors.
b
As a measure of market risk, the beta for the S&P 500 is generally considered to be: a. -1.0. b. 1.0. c. 0. d. impossible to determine.
b
Based on the historic evidence, which of the following is the most supported reason for adding gold to a portfolio of U.S. stocks? a. To increase the portfolio's expected return. b. To reduce the portfolio's risk. c. To increase the portfolio's expected return and reduce its risk. d. To increase the portfolio's expected return and maintain its risk.
b
Each individual asset's weight in the portfolio is found by: a. dividing the asset's standard deviation by its expected value. b. calculating the percentage of the asset's value to the total portfolio value. c. calculating the return of the asset as a percent of total portfolio return. d. dividing the asset's expected value by its standard deviation.
b
Financial risk is most closely associated with: a. the use of equity financing by corporations. b. the use of debt financing by corporations. c. equity investments held by corporations. d. debt investments held by corporations.
b
If a U.S. investor buys foreign stock, his dollar-denominated return will increase if the dollar: a. appreciates relative to the foreign currency. b. depreciates relative to the foreign currency. c. remains unchanged relative to the foreign currency. d. moves to a net gain position relative to all foreign currencies.
b
If you invest in German bonds and the Euro becomes stronger during your holding period, then: a. you will be able to buy back fewer dollars when you redeem your bond. b. your dollar-denominated return will increase. c. your-dollar denominated return will decrease. d. your return will be the interest you receive.
b
In deriving changes in wealth over time, the return relative solves the problem of: a. inflation. b negative returns. c. interest rates. d. tax differences.
b
In order to determine the compound growth rate of an investment over some period, an investor would calculate the: a. arithmetic mean. b. geometric mean. c. calculus mean. d. arithmetic median.
b
In the past 20 years, the benefits of international diversification have: a. increased. b. decreased. c. disappeared. d. become more volatile.
b
Positive theory refers to a theory that: a. explains how economic participants should act. b. describes how economic participants act. c. is optimistic. d. has been shown to have high explanatory power as a result of empirical testing.
b
Select the correct statement regarding the market portfolio. a. It is readily and precisely observable. b. It has no unsystematic risk. c. It has no systematic risk. d. It should be composed of stocks or bonds.
b
Systematic risk is also called: a. diversifiable risk. b. market risk. c. random risk. d. company-specific risk.
b
The Capital Asset Pricing Model: a. has serious flaws because of its complexity. b. shows the relationship between risk and expected return. c. was developed by Markowitz in the 1930s. d. is a discounted-cash-flow valuation model.
b
The arbitrage pricing theory (APT): a. considers only one factor and is a narrower model than the CAPM. b. considers more factors than the CAPM and is a broader model. c. is useful only for well-diversified portfolios of common stock. d. is easy to implement because the factors are readily observable.
b
The efficient set of portfolios represents: a. investor preferences, whereas indifference curves reflect portfolio possibilities. b. portfolio possibilities, whereas indifference curves reflect investor preferences. c. investor risk, whereas indifference curves reflect portfolio return. d. portfolio return, whereas indifference curves reflect investor preferences.
b
The expected market return is 9 percent. The risk-free rate is 1 percent, and XYZ Co. has a beta of 1.4. XYZ's risk premium is: a. 8 percent. b. 11.2 percent. c. 12.2 percent. d. 10.3 percent solution: 1.4(9-1)
b
The expected return on the market for next period is 11 percent. The risk-free rate is 4 percent, and Alpha Company has a beta of 1.1. The market risk premium is: a. 7.7 percent. b. 7 percent. c. 11 percent. d.12.1 percent. solution: (11-4)
b
The housing bubble and resulting credit crisis of 2008 is an example of: a. nonsystematic risk. b. systematic risk. c. inflation risk. d. political risk
b
The slope of the CML is the: a. standard deviation of the market portfolio.::::: b. market price of risk for efficient portfolios. c. risk-free rate. d. risk premium for the market portfolio.
b
To calculate the return on a stock that pays a year-end dividend, an investor should: a. divide the stock's sale price by its purchase price and subtract 1. b. add the dividend and sale price, divide by the purchase price and subtract 1. c. divide the sale price by the purchase price and add the dividend yield. d. divide all cash flows received by the selling price and subtract 1.
b
Under the CMT, the relevant risk to consider with any security is: a. its correlation with other securities in the portfolio. b. its covariance with the market portfolio. c. its deviation from the portfolio required rate of return. d. its variance from the risk-free rate of return.
b
Under the Markowitz model, investors: a. are assumed to be risk-seekers. b. are not allowed to use leverage. c. are assumed to be institutional investors. d. are always better off if they select portfolios consisting of multiple securities.
b
What does it mean when the CAPM is called "robust?" a. The CAPM requires no assumptions. b. Even if the CAPM's major assumptions are relaxed, most of its conclusions still hold. c. The CAPM is based on realistic assumptions. d. No other model can represent stock returns better than the CAPM.
b
When markets are in equilibrium, the CML is upward sloping: a. because it shows the optimum combination of risky securities. b. because the price of risk must always be positive. c. because it contains all securities weighted by their market values. d. because investors expect returns to increase over time.
b
When most people refer to mean rate of return, they are referring to the: a. holding period rate of return. b. arithmetic average rate of return. c. geometric average rate of return. d. cumulative average rate of return.
b
When returns are perfectly positively correlated, the risk of the portfolio is: a. zero. b. the weighted average of the individual security's risk. c. equal to the correlation coefficient between the securities. d. infinite.
b
Which of the following is an assumption of the CMT? a. Single investors can affect the market by their buying and selling decisions. b. There is no inflation. c. Investors prefer capital gains over dividends. d. Different investors have different probability distributions for assets.
b
Which of the following is an implication of the CAPM? a. A security with a beta of 0 has an expected return of 0. b. Investors are not compensated for bearing diversifiable risk. c. The risk-return relationship is nonlinear. d. There are two risk factors that drive asset returns.
b
Which of the following is true regarding random diversification? a. Investment characteristics are considered important in random diversification. b. The net benefit of random diversification eventually disappears as more securities are added. c. Random diversification, if done correctly, can eliminate all risk in a portfolio. d. Random diversification eventually removes all company specific risk from a portfolio.
b
Which of the following is true regarding the cumulative wealth index? It: a. is measured by adding up the total returns over the holding period and dividing by the investment. b. uses a beginning index value (often set to $1, but it can be set to any amount). c. is the present value of the future cash flows expected from the investment. d. uses the arithmetic mean as the rate of growth of one's wealth.
b
Which of the following statements about the difference between the SML and the CML is true? a. The intercept of the CML is the origin, whereas the intercept of the SML is RF. b. The CML applies to efficient portfolios, whereas the SML applies to all portfolios or securities. c. The CML can be downward sloping, whereas that is impossible for the SML. d. The CML and the SML are essentially the same except for the price of risk.
b
Which of the following statements about the expected equity risk premium is true? a. It is occasionally negative. b. There is no direct way to measure it. c. It decreases as investor uncertainty increases. d. It increases as the risk-free rate increases.
b
Which of the following statements is true regarding TIPS? a. As inflation changes, the interest rate on the bond is adjusted. b. The correlation between TIPS and the S&P 500 Index has often been negative. c. TIPS are more volatile than regular Treasury bonds of similar maturity. d. The return on TIPS is often lower than the inflation rate.
b
Which of the following statements regarding investors and the CMT is true? a. Investors recognize that all the assumptions of the CMT are unrealistic. b. Investors recognize that all of the CMT assumptions are not unrealistic. c. Investors are not aware of the assumptions of the CMT model. d. Investors recognize the CMT is useless for individual investors.
b
Which of the following statements regarding portfolio risk and number of stocks is generally true? a. Adding more stocks increases risk. b. Adding more stocks decreases risk, but does not eliminate it. c. Adding more stocks has no effect on risk. d. Adding more stocks decreases only systematic risk.
b
A change in the correlation coefficient of the returns of two securities in a portfolio causes a change in: a. both the expected return and the risk of the portfolio. b. only the expected return of the portfolio. c. only the risk level of the portfolio. d. neither the expected return nor the risk level of the portfolio.
c
According to the Markowitz model, an efficient portfolio is one that has the: a. largest expected return for the smallest level of risk. b. largest expected return and zero risk. c. largest expected return for a given level of risk. d. smallest level of risk.
c
According to the Markowitz model, rational investors will seek efficient portfolios because these portfolios are optimal based on: a. expected return. b. risk. c. expected return and risk. d. transactions costs.
c
An impending recession is an example of: a. interest rate risk. b. inflation risk. c. market risk. d. financial risk.
c
Based on recent history, an investor would have a lower risk level with a portfolio consisting of: a. all stocks. b. all bonds. c. some stocks and some bonds. d. Impossible to tell.
c
Because of increasing correlation between U.S. markets and foreign markets, most professional investors now recommend: a. zero exposure to foreign markets for the foreseeable future. b. replacing foreign stock exposure with U.S. Treasury bonds. c. maintaining some reasonable exposure to foreign markets. d. replacing foreign stock exposure with sovereign debt from investment grade countries.
c
Bob holds a portfolio of 20 stocks from different industries, whereas Sharon holds only one stock in her portfolio. Assuming they each add a stock to their portfolio, which of the following is most likely? Relative to Bob's portfolio, Sharon's portfolio will experience the: a. larger increase in total risk. b. larger increase in return. c. larger decrease in total risk. d. larger decrease in market risk.
c
Different investors estimate the inputs to the Markowitz model differently because: a. every investor has his/her own risk/return preferences. b. every investor has access to different information about securities. c. there is an inherent uncertainty in security analysis. d. there is a random selection process used by individual investors.
c
If the Dow Jones Industrials had a price appreciation of 6 percent one year and yet total return for the year was 9 percent, the difference would be due to: a. the tax treatment of capital gains. b. the cumulative wealth effect. c. dividends. d. inflation.
c
Investors should be willing to invest in riskier investments only: a. if the expected holding period is short term. b. if there are no safe alternatives except for holding cash. c. if the expected return is adequate for the risk level. d. if they are speculators.
c
Liquidity risk: a. is the risk that investment bankers normally face. b. is lower for small OTC stocks than for large NYSE stocks. c. is a risk associated with secondary market transactions. d. increases whenever interest rates increase.
c
New financial disclosure regulations affecting the brokerage industry are a type of: a. market risk. b. financial risk. c. business risk. d. liquidity risk.
c
Probability distributions: a. are always discrete. b. are always continuous. c. can be either discrete or continuous. d. are always symmetric.
c
Securities with betas greater than l should have: a. greater than average diversifiable risk.::::: b. lower than average diversifiable risk. c. required returns higher than the market return. d. no systematic risk.
c
The equity risk premium is the difference between the expected return: a. on stocks and bonds. b. on high-grade stocks and low-grade stocks. c. on stocks and the risk-free rate. d. on a stock market index and the inflation rate.
c
The expected market return is 16 percent. The risk-free rate of return is 7 percent, and BC Co. has a beta of 1.1. BC's required rate of return is: a. 17.6 percent. b. 16.0 percent. c. 16.9 percent. d. 23.0 percent. solution: 7+1.1(16-7)
c
The expected value is the: a. inverse of the standard deviation. b. correlation between a security's risk and return. c. weighted average of all possible outcomes. d. same as the discrete probability distribution.
c
The major difference between the correlation coefficient and the covariance is that the correlation coefficient: a. can be positive, negative, or zero, whereas the covariance is always positive. b. measures the relationship between securities, whereas the covariance measures the relationship between a security and the market. c. is a relative measure showing association between security returns, whereas the covariance is an absolute measure showing association between security returns. d. is a geometric measure, and the covariance is a statistical measure.
c
The major problem with the Markowitz model is its: a. lack of accuracy. b. predictability flaws. c. complexity. d. inability to handle large number of inputs.
c
The optimal portfolio for a risk-averse investor: a. cannot be determined. b. occurs at the point of tangency between the highest indifference curve and the highest expected return. c. occurs at the point of tangency between the highest indifference curve and the efficient set of portfolios. d. occurs at the point of tangency between the highest expected return and lowest-risk efficient portfolio.
c
The optimal portfolio is the efficient portfolio with the a. lowest risk. b. highest risk. c. highest utility. d. least investment.
c
The separation theorem states that: a. systematic risk is separate from unsystematic risk. b. individual security risk is separate from portfolio risk. c. the investment decision is separate from the financing decision. d. the borrowing portfolio is separate from the lending portfolio.
c
The standard deviation of a security measures the: a. systematic risk of the security. b. unsystematic risk of the security. c. total risk of the security. d. risk per unit of return for the security.
c
Under the Market model, the regression line that results when the return of a security is plotted against the market index return is the: a. SML. b. CML. c. characteristic line. d. slope.
c
Which of the following is generally used as a proxy for the risk-free rate of return? a. Savings account b. Certificate of deposit c. Treasury security d. AAA-rated bond
c
Which of the following is not an assumption of both the arbitrage pricing theory (APT) and the CAPM? a. Investors have homogeneous beliefs. b. Investors are risk-averse utility maximizers. c. Borrowing and lending can be done at the rate RF. d. Markets are perfect.
c
Which of the following is not one of the assumptions of the CMT? a. All investors have the same one-period time horizon. b. There are no personal income taxes. c. There is no interest rate charged on borrowing. d. There are no transaction costs.
c
Which of the following is not part of the yield component of total return? a. Dividend payment on common stock b. Coupon interest payment on bonds c. Capital gain upon sale of stock d. Dividend payment on preferred stock
c
Which of the following is the correct calculation for the required rate of return under the CAPM? a. Beta × (market risk premium) b. Beta + market risk premium c. Risk-free rate + risk premium d. Risk-free rate × (market risk premium)
c
Which of the following is true regarding the Markowitz model? a. It fully addresses the use of leverage. b. The inputs to the model are the portfolio asset weights. c. An investor's optimal portfolio occurs where the investor's indifference curve is tangent to the efficient frontier. d. Markowitz diversification is inefficient diversification.
c
Which of the following is true regarding the expected return of a portfolio? a. It is a weighted average only for stock portfolios. b. It can only be positive. c. It can never be above the highest individual asset return. d. It is always below the highest individual asset return.
c
Which of the following might be used as a factor in an APT factor model? a. The risk-free rate b. Expected inflation c. Unanticipated deviations from expected inflation d. Loss by fire at a company's manufacturing plant
c
Which of the following statements about the correlation coefficient of the returns for two securities is not true? a. It is a statistical measure. b. It measures the relationship between the two securities' returns. c. It determines the cause of the relationship between the two securities' returns. d. Its value falls between -1 and +1.
c
Which of the following statements regarding expected return of a portfolio is true? It can: a. be higher than the weighted average expected return of the individual assets. b. be lower than the weighted average return of the individual assets. c. never differ from the weighted average expected return of the individual assets. d. not be calculated.
c
Which of the following statements regarding the arithmetic mean and the geometric mean is true? a. The arithmetic mean is always a better measure of average performance. b. The geometric mean is always a better measure of average performance. c. The arithmetic mean is a better measure of performance over single periods. d. The geometric mean is the best estimate of the expected return for the next period.
c
Which of the following would be considered a random variable? a. Expected value b. Correlation coefficient between two assets c. One-period rate of return for an asset d. Beta
c
With a continuous probability distribution: a. a probability is assigned to each possible outcome. b. possible outcomes are constantly changing. c. an infinite number of possible outcomes exist. d. there is no variance.
c
A portfolio which lies below the efficient frontier is described as: a. optimal. b. unattainable. c. dominant. d. dominated.
d
Asset allocation is one of the most widely used applications of: a. the Capital Asset Pricing Model. b. random diversification. c. passive portfolio approach. d. modern portfolio theory.
d
Calculate the risk (standard deviation) of the following two-security portfolio if the correlation coefficient between the two securities is equal to 0.5. Variance Weight (in the portfolio) Security A 10 0.3 Security B 20 0.7 a. 17.0 percent b. 5.4 percent c. 2.0 percent d. 3.7 percent
d
Company specific risk is also known as: a. market risk. b. systematic risk. c. non-diversifiable risk. d. diversifiable risk.
d
For which of the following models is beta the slope term? a. Risk-free model b. CAPM c. CML d. Market model
d
Gordon holds a portfolio of U.S. equities and is considering adding several alternative ETFs that are tied to different asset classes. Adding which of the following ETFs would produce the largest reduction in the risk of Gordon's portfolio? a. A real estate ETF b. An emerging markets ETF c. An EAFE ETF d. A U.S. bond ETF
d
Indifference curves for a risk-averse individual: a. will be the same as the indifference curves for any other risk-averse individual. b. have a negative slope. c. frequently intersect. d. are convex.
d
Markowitz's main contribution to portfolio theory is that risk is: a. the same for each type of financial asset. b. a function of credit, liquidity, and market factors. c. not quantifiable. d. influenced more by covariance than variance when portfolios are large.
d
Political stability is the major factor concerning: a. exchange-rate risk. b. systematic risk. c. nonsystematic risk. d. country risk.
d
Portfolio risk is most often measured by professional investors using the: a. expected value. b. portfolio's beta. c. weighted average of the individual asset's risk. d. portfolio's standard deviation.
d
Present value is based on the concept of: a. compounding. b. systematic risk. c. duration. d. discounting.
d
Security A and Security B have a correlation coefficient of 0. If Security A's return is expected to increase by 10 percent, Security B's: a. return should also increase by 10 percent. b. return should decrease by 10 percent. c. return should be zero. d. expected return is impossible to determine from the above information.
d
The APT is based on the: a. law of averages. b. law of attraction. c. law of accelerating return. d. law of one price.
d
The bell-shaped curve, or normal distribution, is considered: a. discrete. b. downward sloping. c. linear. d. continuous.
d
The only asset class to provide systematic protection against inflation is: a. bonds. b. real estate. c. foreign stocks. d. TIPS.
d
The relevant risk for a well-diversified portfolio is: a. interest rate risk. b. inflation risk. c. business risk. d. market risk.
d
Total return is equal to: a. capital gain + price change. b. yield + income. c. capital gain - loss. d. yield + price change.
d
Two stocks with perfect negative correlation will have a correlation coefficient of: a. +1.0 b. -2.0 c. 0.0 d. -1.0
d
Which of the following best approximates the typical correlation between the S&P 500 and the MSCI EAFE Index? a. -50% b. 0% c. 25% d. 70%
d
Which of the following corresponds most closely with an increase in interest rates? a. Business risk b. Financial risk c. Liquidity risk d. Inflation risk
d
Which of the following involves the interrelationship between security returns as well as the expected returns and variances of those returns? a. Random diversification b. Correlating diversification c. Friedman diversification d. Markowitz diversification
d
Which of the following is not an assumption of Markowitz portfolio theory? a. A single investment period b. Investor preferences are based only on expected return and risk c. Low transactions costs d. The availability of a risk-free asset
d
Which of the following portfolios cannot be on the efficient frontier? a. A: expected return of 10 percent; standard deviation of 8 percent b. B: expected return of 18 percent; standard deviation of 13 percent c. C: expected return of 38 percent; standard deviation of 38 percent d. D: expected return of 15 percent; standard deviation of 14 percent
d
Which of the following statements about diversification is most accurate? The purpose of diversification is to: a. increase a portfolio's expected return. b. reduce a portfolio's non-diversifiable risk. c. reduce a portfolio's systematic risk. d. reduce a portfolio's total risk.
d
Which of the following statements is most accurate? The: a. CML plots individual stocks and efficient portfolios. b. CML plots both efficient and inefficient portfolios. c. SML plots individual securities and efficient portfolios, only. d. SML plots individual securities, inefficient portfolios, and efficient portfolios.
d
