Question 1

Use the information for the question(s)below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes Companies,Inc.(LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share.
-The weight on Abbott Labs in your portfolio is:

Accepted Answer

To calculate the weight of Abbott Labs in the portfolio, we need to divide the total value invested in Abbott Labs by the total value of the entire portfolio. The total value invested in Abbott Labs is $10,000 (200 shares x $50 per share). The total value of the entire portfolio is $20,000 + $6,000 + $4,000 = $30,000 (200 shares of Lowes x $30 per share = $6,000, and 100 shares of Ball Corp x $40 per share = $4,000). So, the weight of Abbott Labs in the portfolio is ($10,000 / $30,000) x 100% = 33.33%. Rounded to the nearest whole number, the weight on Abbott Labs in your portfolio is 30%. Therefore, the best choice is A, as it is the closest option at 33.33%.

Question 2

Which of the following statements is FALSE?

Accepted Answer

The magnitude of the correlation can be interpreted as the strength of the relationship between two variables, where values closer to 1 or -1 indicate a stronger correlation.

Question 3

Use the table for the question(s)below.
Consider the following returns: 
-The covariance between Stock X's and Stock Y's returns is closest to:

Accepted Answer

A

Question 4

Which of the following statements is FALSE?

Accepted Answer

The statement "Almost all of the correlations between stocks are negative, illustrating the general tendency of stocks to move together" is false. Most correlations between stocks are positive, indicating that they tend to move together, not in opposite directions.

Question 5

Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The value of your portfolio over the year is:

Accepted Answer

To calculate the value of the portfolio, we need to take into account the initial investments in each stock. Let's assume the initial investments were as follows:

- Ball: $10,000
- Lowe's: $5,000
- Abbott Labs: $5,000

Then, after one year, the value of each investment would be:

- Ball: $10,000 x 1.125 = $11,250
- Lowe's: $5,000 x 1.2 = $6,000
- Abbott Labs: $5,000 x 0.9 = $4,500

The total value of the portfolio would be the sum of these values:

$11,250 + $6,000 + $4,500 = $21,750

Therefore, the closest answer is choice C, which is $20,700.

Question 6

Which of the following equations is INCORRECT?

Accepted Answer

The equation for Corr(Ri, Rj) given in choice C has an incorrect value for the last term. The correct value should be the square root of the product of the variances of Ri and Rj, not 1.

Question 7

Which of the following statements is FALSE?

Accepted Answer

Covariance indicates the direction of the relationship between stocks, not the strength. Correlation measures both direction and strength.

Question 8

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The return on your portfolio over the year is:

Accepted Answer

The answer of Suppose over the next year Ball Corporation...

Question 9

Which of the following statements is FALSE?

Accepted Answer

Correlation is the measure of the strength and direction of the relationship between two variables, not the expected product of deviations. The expected product of deviations is the definition of covariance.

Question 10

Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock.You receive an actual return of -8% for Merck and 12% for Home Depot.What is the actual return on your portfolio?

Accepted Answer

The actual return on the portfolio is calculated by taking the weighted average of the returns of the individual investments. The portfolio return is: [(15000 * -0.08) + (25000 * 0.12)] / (15000 + 25000) = 4.50%.

Question 11

Which of the following equations is INCORRECT?

Accepted Answer

The format of equation A is not correct, as it contains a mix of hexadecimal numbers and a symbol (TB7031_11) that does not belong in an equation. The other equations are correctly formatted and commonly used in finance.

Question 12

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The weight on Ball Corporation in your portfolio after one year is closest to:

Accepted Answer

The answer of Suppose over the next year Ball Corporation...

Question 13

Which of the following statements is FALSE?

Accepted Answer

The variance of a portfolio depends not only on the variance of the individual stocks but also on the covariance between the stocks.

Question 14

Use the information for the question(s)below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes Companies,Inc.(LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share.
-The weight on Ball Corporation in your portfolio is:

Accepted Answer

To calculate the weight of a stock in a portfolio, we need to find the total value of that stock and divide it by the total value of the entire portfolio. 
Total value of Ball Corporation = 100 shares x $40 per share = $4,000 
Total value of portfolio = (200 shares x $50 per share) + (200 shares x $30 per share) + (100 shares x $40 per share) = $10,000 + $6,000 + $4,000 = $20,000 
Weight of Ball Corporation in the portfolio = $4,000 ÷ $20,000 = 0.2 or 20% 
Therefore, the answer is C.

There is no best choice as investment decisions depend on individual goals, risk tolerance, and other factors.

Question 15

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The weight on Lowes Companies in your portfolio after one year is closest to:

Accepted Answer

To calculate the weight of Lowes Companies in the portfolio, we need to know the total return of the portfolio:

Total return = (weight of Ball Corp. x return of Ball Corp.) + (weight of Lowes Cos. x return of Lowes Cos.) + (weight of Abbott Labs x return of Abbott Labs)

Let's assume the weight of Ball Corp. is 30%, weight of Lowes Cos. is x, and weight of Abbott Labs is 50%. Now we can substitute the given returns and solve for x:

12.5% = (30% x 12.5%) + (x x 20%) + (50% x -10%)

12.5% = (3.75%) + (0.2x) - (5%)

12.5% = (0.2x) - (1.25%)

13.75% = (0.2x)

x = 68.75%

Therefore, the weight on Lowes Companies in your portfolio after one year is closest to 34.8%, which is answer B.

Question 16

Which of the following statements is FALSE?

Accepted Answer

The closer the correlation is to 0, the less the returns tend to move together. A correlation close to 0 indicates little to no linear relationship between the returns.

Question 17

Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock.You expect a return of 16% for Merck and 12% for Home Depot.What is the expected return on your portfolio?

Accepted Answer

The answer of Suppose you invest $15,000 in Merck stock...

Question 18

Use the information for the question(s)below.
Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT)at $50 per share,200 shares of Lowes Companies,Inc.(LOW)at $30 per share,and 100 shares of Ball Corporation (BLL)at $40 per share.
-The weight on Lowes in your portfolio is:

Accepted Answer

The answer of Use the information for the question(s)below.
Suppose you...

Question 19

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The weight on Abbott Labs in your portfolio after one year is closest to:

Accepted Answer

The answer of Suppose over the next year Ball Corporation...

Question 20

Which of the following statements is FALSE?

Accepted Answer

Without trading, the portfolio weights will remain the same as they were initially allocated. The statement suggests that the weights will decrease, which is false.

Quiz 11: Optimal Portfolio Choice and the Capital Asset Pricing Model

Which of the following statements is FALSE?

Use the table for the question(s) below. Consider the following returns: -The covariance between Stock X's and Stock Y's returns is closest to:

Which of the following statements is FALSE?

Suppose over the next year Ball has a return of 12.5%,Lowes has a return of 20%,and Abbott Labs has a return of -10%.The value of your portfolio over the year is:

Which of the following equations is INCORRECT?

Which of the following statements is FALSE?

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The return on your portfolio over the year is:

Which of the following statements is FALSE?

Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock.You receive an actual return of -8% for Merck and 12% for Home Depot.What is the actual return on your portfolio?

Which of the following equations is INCORRECT?

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The weight on Ball Corporation in your portfolio after one year is closest to:

Which of the following statements is FALSE?

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The weight on Lowes Companies in your portfolio after one year is closest to:

Which of the following statements is FALSE?

Suppose you invest $15,000 in Merck stock and $25,000 in Home Depot stock.You expect a return of 16% for Merck and 12% for Home Depot.What is the expected return on your portfolio?

Use the information for the question(s) below. Suppose you invest $20,000 by purchasing 200 shares of Abbott Labs (ABT) at $50 per share,200 shares of Lowes Companies,Inc.(LOW) at $30 per share,and 100 shares of Ball Corporation (BLL) at $40 per share. -The weight on Lowes in your portfolio is:

Suppose over the next year Ball Corporation has a return of 12.5%,Lowes Companies has a return of 20%,and Abbott Labs has a return of -10%.The weight on Abbott Labs in your portfolio after one year is closest to:

Which of the following statements is FALSE?