Question 1

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 weight on Abbott Labs in your portfolio after one year is closest to:

Accepted Answer

B)
 11ea7e60_15ab_7609_ba34_837c44cb4716_TB1624_00 Value of portfolio = 20000(1 + .035) = 20700
Value of ABT = $10000(1 + -.10) = $9000
Weight for ABT = 9000/20700 = 0.434783

Question 2

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

A) = (15,000/40,000)(.16) + (25,000/40,000)(.12) = .135

Question 3

Which of the following statements is FALSE?

Accepted Answer

C) The closer the correlation is to 1, the more the returns tend to move together as a result of common risk.

Question 4

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 weight on Lowes in your portfolio after one year is closest to:

Accepted Answer

B)
 11ea7e60_15ab_760a_ba34_e1c8c3f4487f_TB1624_00 Value of portfolio = 20000(1 + .035) = 20700
Value of LOW = $6000(1 + .20) = $7200
Weight for LOW = 7200/20700 = 0.347826

Question 5

Which of the following equations is INCORRECT?

Accepted Answer

A) x_i = 11ea7e60_15ab_00d5_ba34_418c36e226ef_TB1624_11

Question 6

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 (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

D) Value of portfolio = 200 × $50 + 200 × $30 + 100 × $40 = $20,000 x_i = value of security/value of portfolio = (200 × $30)/$20000 = .30 or 30%

Question 7

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 8

Which of the following statements is FALSE?

Accepted Answer

D) The correlation allows us to gauge the strength of the relationship between stocks.

Question 9

Which of the following statements is FALSE?

Accepted Answer

Correlation is the standardized measure of the degree to which two returns move together, not the expected product of the deviations.

Question 10

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 weight on Ball Corporation in your portfolio after one year is closest to:

Accepted Answer

D)
 11ea7e60_15ab_7608_ba34_21effd8c3565_TB1624_00 Value of portfolio = 20000(1 + .035) = 20700
Value of BLL = $4000(1 + .125) = $4500
Weight for BLL = 4500/20700 = 0.217391

Question 11

Which of the following equations is INCORRECT?

Accepted Answer

C) Corr(R_i,R_j) = 11ea7e60_15ab_eb3d_ba34_25f8a5a02fb9_TB1624_11

Question 12

Which of the following statements is FALSE?

Accepted Answer

A) Without trading, the portfolio weights will increase for the stocks in the portfolio whose returns are above the overall portfolio return.

Question 13

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)
 11ea7e60_15ac_124f_ba34_a539aa531c6e_TB1624_00

Question 14

Which of the following statements is FALSE?

Accepted Answer

C) Almost all of the correlations between stocks are positive, illustrating the general tendency of stocks to move together.

Question 15

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 (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

C) Value of portfolio = 200 × $50 + 200 × $30 + 100 × $40 = $20,000 x_i = value of security/value of portfolio = (100 × $40)/$20000 = .20 or 20%

Question 16

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 (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

A) Value of portfolio = 200 × $50 + 200 × $30 + 100 × $40 = $20,000 x_i = value of security/value of portfolio = (200 × $50)/$20000 = .50 or 50%

Question 17

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

A) = (15,000/40,000)(-0.08) + (25,000/40,000)(.12) = .045

Question 18

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

C)
 11ea7e60_15ab_4ef7_ba34_7d0242873b5c_TB1624_00 Value of portfolio = 20000(1 + .035) = 20700

Question 19

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 return on your portfolio over the year is:

Accepted Answer

C)
 11ea7e60_15ab_27e6_ba34_6f2e8968d3fe_TB1624_00

Question 20

Which of the following statements is FALSE?

Accepted Answer

D) The variance of a portfolio depends on the variance and correlations of the individual stocks.

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

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 weight on Abbott Labs in your portfolio after one year is closest to:

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?

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 weight on Lowes in your portfolio after one year is closest to:

Which of the following equations is INCORRECT?

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 (LOW) at $30 per share, and 100 shares of Ball Corporation (BLL) at $40 per share. -The weight on Lowes in your portfolio is:

Which of the following statements is FALSE?

Which of the following statements is FALSE?

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 weight on Ball Corporation in your portfolio after one year is closest to:

Which of the following equations is INCORRECT?

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?

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 (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:

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 (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:

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?

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:

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 return on your portfolio over the year is:

Which of the following statements is FALSE?