Quiz 5 (Chapter 6) Attempt review 1 PDF

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Started on Wednesday, 16 June 2021, 11:01 PM State Finished Completed on Wednesday, 16 June 2021, 11:04 PM Time taken 3 mins 48 secs Grade 15.00 out of 15.00 (100%) Question 1 Correct Mark 1.00 out of 1.00

22. The slope of CAL is useful in

Select one: a. measuring the standard deviation of returns b. analysing returns on variable-rate bonds c. understanding capital structure of a rm

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d. understanding how returns increase relative to risk increases

Question 2 Correct Mark 1.00 out of 1.00

17. Which of the following statements is FALSE?

Select one:

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a. It is not possible to invest more than 100% in risky asset b. The slope of CAL is called Sharpe ratio c. Slope of indierence curve in nance is positive (assume investor is risk averse) d. CAL may not always be a straight line

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Question 3 Correct Mark 1.00 out of 1.00

5. Which of the following statements is TRUE?

Select one: a. If the risk premium of a portfolio is zero or negative, its certainty equivalent rate will be below that of the riskfree alternative for any risk-averse investor.

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b. If the risk premium of a portfolio is zero or positive, its certainty equivalent rate will be below that of the risk-free alternative for any risk-averse investor. c. If the risk premium of a portfolio is zero or negative, its certainty equivalent rate will be above that of the riskfree alternative for any risk-averse investor. d. If the risk premium of a portfolio is zero or negative, its certainty equivalent rate will be below that of the riskfree alternative for any risk-seeker investor.

Question 4 Correct Mark 1.00 out of 1.00

26. Capital Market Line (CML) represents the investment opportunity set generated by

Select one: a. Active investment strategy

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b. Passive investment strategy c. Risk-free investment strategy d. Security analysis

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Question 5 Correct Mark 1.00 out of 1.00

9. An investor with a risk-aversion coecient of 3 would choose the asset with an expected rate of return of ______ and a standard deviation of ________ respectively.

Select one: a. 12%, 20%

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b. 10%, 10% c. 10%, 15% d. 8%, 10%.

Question 6 Correct Mark 1.00 out of 1.00

30. The value of risk aversion in utility function for risk-averse, risk-lover and risk-neutral investors are

Select one: a. Less than zero, zero and greater than zero respectively

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b. Greater than zero, less than zero and zero respectively c. Greater than zero, zero and less than zero respectively d. Zero, less than zero and greater than zero respectively

Question 7 Correct Mark 1.00 out of 1.00

3. The welfare score assigned by each investor to competing portfolios on the basis of the expected return and risk of those portfolios is popularly known as

Select one: a. Portfolio return b. Risk premium c.

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Utility

d. Gross Domestic Product (GDP)

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Question 8 Correct Mark 1.00 out of 1.00

8. Which of the following statements is FALSE?

Select one: a. Indierence curve of two investors might intersect

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b. Slope of indierence curve for risk averse investor may be negative c. In a set of indierence curves, the highest oers the greatest utility d. An investor's own indierence curves cannot intersect

Question 9 Correct Mark 1.00 out of 1.00

28. The change from a straight to a kinked capital allocation line is the result of the:

Select one: a. Sharpe ratio increasing

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b. Borrowing rate exceeding the lending rate c. Increase in the portfolio proportion of the risk-free asset d. Investor’s risk tolerance increasing

Question 10 Correct Mark 1.00 out of 1.00

27. The strategy of investing in a risk-free short-term T-bill and a fund of common stocks that mimics a broad market index is represented by

Select one: a. Capital Allocation Line (CAL)

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b. Capital Market Line (CML) c. Security Market Line (SML) d. Capital asset pricing model (CAPM) Dashboard

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Question 11 Correct Mark 1.00 out of 1.00

2. Which of the following statements is not TRUE?

Select one: a. Risk averse investors consider only risk-free or speculative prospects with positive risk premiums.

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b. Risk-averse investors do not penalize the expected rate of return of a risky portfolio c. A portfolio is more attractive when its expected return is higher and its risk is lower. d. None of the above.

Question 12 Correct Mark 1.00 out of 1.00

19. An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.15 and a standard deviation of 4% and 70% in a T-bill that pays 6%. The standard deviation of his portfolio is:

Select one: a. 6% b. 2.8% c.

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1.2%

d. 4%

Question 13 Correct Mark 1.00 out of 1.00

15. If the borrowing rate is higher than the lending rate, then the slope of the CAL in the lending region will be -------------than the slope of the borrowing region

Select one: a. Lower b. Flatter c.

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Higher

d. None of the above

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Question 14 Correct Mark 1.00 out of 1.00

20. You invest $100 in a risky asset with an expected rate of return of 12% and a standard deviation of 15% and a T-bill with a rate of return of 5%. If the expected return of this portfolio is 8.99%, what percentages of your money did you invest in risky and risk-free assets?

Select one: a. 80% and 20% b. 57% and 43%

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c. 67.50% and 32.50% d. 47% and 53%

Question 15 Correct Mark 1.00 out of 1.00

11. According to the mean-variance criterion, which one of the following investments dominates all others?

Select one: a. E(r) = 0.15; Variance = 0.20 b. E(r) = 0.10; Variance = 0.20 c. E(r) = 0.10; Variance = 0.25 d. E(r) = 0.15; Variance = 0.25

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BRIEF SOLUTIONS TO CHAPTER 6[1] PROBLEMS ►

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