Define Investment Management Questions
Problem: Need help with the following Investment Management Questions:
Problem1- The risk of a portfolio consisting of two uncorrelated assets will be
i. Equal to zero.
ii. Greater than the risk of the least risky asset but less than the risk level of the more risky asset.
iii. Greater than zero but less than the risk of the more risky asset.
iv. Equal to the average of the risk level of the two assets.
Problem2- The beta of the market is
i. -1.0.
ii. 0.0.
iii. 1.0.
iv. Undefined.
Problem3- Portfolio objectives should be established independently of tax considerations.
True
False
Problem4- A stock with a beta of 1.3 is less risky than a stock with a beta of 0.42.
True
False
Problem5- Portfolios located on the efficient frontier are preferable to all other portfolios in the feasible set.
True
False
Problem6- The Capital Asset Pricing Model (CAPM) includes which of the following in its base assumptions?
I. Investors should earn a minimum retun rate equal to the risk-free rate.
II. Investors in the market should earn a return greater than the return on the overall market.
III. Investors shoud be awarded for the amount of risk they assume.
IV. Investors should earn a return located above the Security Market Line.
I and III only
II and IV only
I, II and III only
I, III, and IV only
Problem7- To obtain the maximum reduction in risk, an investor should combine assets that
i. Are negatively correlated.
ii. Are uncorrelated.
iii. Have a correlation coefficient of positive one.
iv. Have a correlation coefficient of negative one.
Problem8- Standard deviation is a measure that indicates how the price of an individual security responds to market forces.
True
False
Problem9- Traditional portfolio management
i. Concentrates on only the most recent "hot" sectors of the market.
ii. Typically centers on interindustry diversification.
iii. Includes only diversified bonds in a laddered portfolio.
iv. Is based on statistical measures to develop the portfolio plan.
Problem10- Amanda has the following portfolio of assets.
i. Poporation of
ii. Stock Portfolio Beta
iii. ABC $7,000 .85
iv. DEF $12,000 1.25
v. GHI $6,000 1.10
Problem11- What is the beta of Jonathan's portfolio?
i. 1.06
ii. 1.10
iii. 1.13
iv. 3.02
Solve the following problems
Problem1- A measure of systematic risk
i. Standard deviation
ii. Historical average rate of return
iii. Beta
iv. Variance
Problem2- Diversifiable risk is also called systematic risk.
True
False
Problem3- Studies have shown that investing in different industries as well as different countries reduces portfolio risk.
True
False
Problem4- Which of the following factors comprise the CAPM?
I. Divendend yield
II. Risk-free rate of return
III. The expected rate of return on the market
IV. Risk premuim for the firm
I and III only
II and IV only
III and IV only
II, III and IV only
Problem5- 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
i. Security A has the highest degree of market risk.
ii. Security B has 20% more systematic risk than the market.
iii. Security C has the highest degree of market risk.
iv. Security C would be the best investment if a strong bull market is expected.
Problem6- 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
i. -2.0.
ii. -0.40.
iii. 0.50.
iv. 2.0.
Problem7- 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.
True
False
Problem8- A portfolio that offers the lowest risk for a given level of return is known as an efficient portfolio.
True
False
Problem9- In designing a portfolio, the only relevant risk is
i. Ttotal risk.
ii. Unsystematic risk.
iii. Event risk.
iv. Nondiversifiable risk.
Problem10- The basic theory linking risk and return is the Capital Asset Pricing Model
True
False
Solve the following problems
Problem1- A stock's beta value is a measure of
i. Interest rate risk.
ii. Total risk.
iii. Systematic risk.
iv. Diversifiable risk.
Problem2- The investment choice of an individual is affected by
I. Their tolerance for risk
II. Their prior investment experience
III. Their marginal tax braket
IV. The stability of their income
II and III only
II, III and IV only
I, III and IV only
I, II, III and IV
Problem3- The optimal portfolio for an individual investor is represented by the point that lies on the
i. Lowest possible utility curve and connects to the efficient frontier.
ii. Utility curve which is just tangent to the right side of the feasible set of risk-return options.
iii. Utility curve which is just tangent to the efficient frontier.
iv Uutility curve which represents the highest possible rate of return within the feasible set of risk-return options.
Problem4- Portfolio objectives should be established before beginning to invest.
True
False
Problem5- Market return is the average return on a large sample of stocks such as those in the Standard & Poor's 500 Stock Composite Index.
True
False
Problem6- Risk can be totally eliminated by combining two assets that are perfectly positively correlated.
True
False
Problem7- Historical betas are always reliable predictors of future return fluctuations.
True
False
Problem8- When the Capital Asset Pricing Model is depicted graphically, the result is the
i. Standard deviation line.
ii. Coefficient of variation line.
iii. Security market line.
iv. Alpha-beta line.
Problem9- 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
i. +1.5.
ii. +1.0.
iii. -1.0.
iv -0.5.
Problem10- Beta measures diversifiable risk while standard deviation measures systematic risk.
True
False
I need the answer the above problems.