Chaminade Univ MBA 754 (Investment Mgmt) Week 5 – Ch 05 Homework (Graded)

Grading SummaryThese
are the automatically computed results of your exam. Grades for essay
questions, and comments from your instructor, are in the “Details”
section below. Date Taken: Time Spent: Points Received:
Question
Type: # Of Questions: True/False 14 Multiple Choice 16

Grade
Details – All QuestionsQuestion 1. Question : The risk of a portfolio
consisting of two uncorrelated assets will be
Student
Answer: equal to zero.
greater
than the risk of the least risky asset but less than the risk level of the more
risky asset. greater than zero but less than the risk of the more risky asset.
equal
to the average of the risk level of the two assets.

Question
2. Question : The beta of the market is
Student
Answer: -1.0.
0.0.
1.0.
undefined.

Question
3. Question : Portfolio objectives should be established independently of tax
considerations.
Student
Answer: True False

Question
4. Question : A stock with a beta of 1.3 is less risky than a stock with a beta
of 0.42.
Student
Answer: True False

Question
5. Question : Portfolios located on the efficient frontier are preferable to
all other portfolios in the feasible set.
Student
Answer: True False

Question
6. Question : The Capital Asset Pricing Model (CAPM) includes which of the
following in its base assumptions?
Student
Answer: I and III only
II and
IV only
I, II
and III only
I,
III, and IV only

Question
7. Question : To obtain the maximum reduction in risk, an investor should
combine assets that
Student
Answer: are negatively correlated.
are
uncorrelated.
have a
correlation coefficient of positive one.
have a
correlation coefficient of negative one.

Question
8. Question : Standard deviation is a measure that indicates how the price of
an individual security responds to market forces.
Student
Answer: True False

Question
9. Question : Traditional portfolio management
Student
Answer: concentrates on only the most recent “hot” sectors of the
market.
typically
centers on interindustry diversification.
includes
only diversified bonds in a laddered portfolio.
is
based on statistical measures to develop the portfolio plan.

Question
10. Question : Amanda has the following portfolio of assets.

What
is the beta of Jonathan’s portfolio?
Student
Answer: 1.06
1.10
1.13
3.02

Question
11. Question : A measure of systematic risk
Student
Answer: standard deviation
historical
average rate of return
beta
variance

Question
12. Question : Diversifiable risk is also called systematic risk.
Student
Answer: True False

Question
13. Question : Studies have shown that investing in different industries as
well as different countries reduces portfolio risk.
Student
Answer: True False

Question
14. Question : Which of the following factors comprise the CAPM?
Student
Answer: I and III only
II and
IV only
III
and IV only
II,
III and IV only

Question
15. Question : Security A has a beta of .99, security B has a beta of 1.2, and
security C has a beta of -1.0. This information indicates that
Student
Answer: security A has the highest degree of market risk.
security
B has 20% more systematic risk than the market.
security
C has the highest degree of market risk.
security
C would be the best investment if a strong bull market is expected.

Question
16. Question : The market rate of return increased by 8% while the rate of
return on XYZ stock increased by 4%. The beta of XYZ stock is
Student
Answer: -2.0.
-0.40.
0.50.
2.0.

Question
17. Question : A coefficient of determination of 0.6 means that 40% of the
variation in a security’s return is related to factors other than the
security’s relationship to the market.
Student
Answer: True False

Question
18. Question : A portfolio that offers the lowest risk for a given level of
return is known as an efficient portfolio.
Student
Answer: True False

Question
19. Question : In designing a portfolio, the only relevant risk is
Student
Answer: total risk.
unsystematic
risk.
event
risk.
nondiversifiable
risk.

Question
20. Question : The basic theory linking risk and return is the Capital Asset
Pricing Model.
Student
Answer: True False

Question
21. Question : A stock’s beta value is a measure of
Student
Answer: interest rate risk.
total
risk.
systematic
risk.
diversifiable
risk.

Question
22. Question : The investment choice of an individual is affected by
Student
Answer: II and III only
II,
III and IV only
I, III
and IV only
I, II,
III and IV

Question
23. Question : The optimal portfolio for an individual investor is represented
by the point that lies on the
Student
Answer: lowest possible utility curve and connects to the efficient frontier.
utility
curve which is just tangent to the right side of the feasible set of risk-return
options.
utility
curve which is just tangent to the efficient frontier.
utility
curve which represents the highest possible rate of return within the feasible
set of risk-return options.

Question
24. Question : Portfolio objectives should be established before beginning to
invest.
Student
Answer: True False

Question
25. Question : Market return is the average return on a large sample of stocks
such as those in the Standard & Poor’s 500 Stock Composite Index.
Student
Answer: True False

Question
26. Question : Risk can be totally eliminated by combining two assets that are
perfectly positively correlated.
Student
Answer: True False

Question
27. Question : Historical betas are always reliable predictors of future return
fluctuations.
Student
Answer: True False

Question
28. Question : When the Capital Asset Pricing Model is depicted graphically,
the result is the
Student
Answer: standard deviation line.
coefficient
of variation line.
security
market line.
alpha-beta
line.

Question
29. Question : The best stock to own when the stock market is at a peak and is
expected to decline in value is one with a beta of
Student
Answer: +1.5.
+1.0.
-1.0.
-0.5.

Question
30. Question : Beta measures diversifiable risk while standard deviation
measures systematic risk.
Student
Answer: True False