Question 1

Based on recent research, it seems reasonable that approximately 10-20 securities are needed to ensure adequate diversification.

Accepted Answer

The answer of Based on recent research, it seems reasonable...

Question 2

It would be impossible to combine an asset allocation plan with Markowitz analysis.

Accepted Answer

It is possible to combine an asset allocation plan with Markowitz analysis, as Markowitz analysis is often used as a tool in creating an asset allocation plan. Markowitz analysis helps investors to select a combination of assets that will minimize risk for a given level of return. This is an important consideration when creating an asset allocation plan, which aims to find the optimal allocation of assets to achieve an investor's goals and objectives.

Question 3

Assume ABC are all positively correlated. A fourth stock is being considered for addition to the portfolio, either stock D or stock E. Both D and E have expected returns of 12%. If stock D is positively correlated with ABC and E is negatively correlated with ABC, which stock should be added to the portfolio? Why?

Accepted Answer

The answer of Assume ABC are all positively correlated. A...

Question 4

Suppose you interview two different portfolio managers about their efficient sets of portfolios. Is it possible, or even probable, that they would have two different efficient sets? Why?

Accepted Answer

The answer of Suppose you interview two different portfolio managers...

Question 5

Discuss the importance of the asset allocation decision for portfolio performance.

Accepted Answer

The answer of Discuss the importance of the asset allocation...

Question 6

Asset allocation accounts for less than 50 percent of the variance in quarterly returns for a typical pension fund.

Accepted Answer

The answer of Asset allocation accounts for less than 50...

Question 7

Given the following information, calculate the expected return of Portfolio ABC. Expected return of stock A = 10%, Expected return of stock B = 15%, Expected return of stock C = 6%. 40 percent of the portfolio is invested in A, 40 percent is invested in B and 20 percent is invested in C.

Accepted Answer

The answer of Given the following information, calculate the expected...

Question 8

Distinguish between systematic and nonsystematic risk. What are two other names for each? Give examples of each.

Accepted Answer

The answer of Distinguish between systematic and nonsystematic risk. What...

Question 9

Real estate has never been shown to be positively correlated with the performance of stocks.

Accepted Answer

Real estate and stocks have been shown to have a weak positive correlation, meaning that in some cases, they may move in the same direction. However, this correlation is not consistent and there are many factors that can affect the performance of both markets independently.

Question 10

A well diversified portfolio will typically consist of a mix of small, mid and large cap stocks, both U.S. and foreign, as well as corporate and U.S. Treasury bonds, real estate and commodities.

Accepted Answer

A well diversified portfolio should indeed include a mix of various asset classes, including stocks of different market capitalizations and regions, bonds, real estate, and commodities, in order to minimize the risk of losses and maximize potential returns.

Question 11

What variable is manipulated to determine efficient portfolios, and why are the other variables not changed at will?

Accepted Answer

The answer of What variable is manipulated to determine efficient...

Question 12

Explain what is efficient about the efficient frontier.

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The answer of Explain what is efficient about the efficient...

Question 13

Academic research shows asset allocation decisions explain approximately 90% of the variation in returns in a portfolio, whereas individual security analysis, including "stock picking," explains only about 10%.

Accepted Answer

This statement is supported by academic research on portfolio management.

Question 14

The Markowitz Model does not depend on the assumption of normally distributed security returns.

Accepted Answer

The answer of The Markowitz Model does not depend on...

Quiz 8: Portfolio Selection for All Investors