Homework Answers
Ans- Option C.
If security i's required return exceeds its expected return, it indicates that the stock is overvalued and should be sold. Hence, adding more of the security in portfolio we not improve the performance as the security is fairly overvalued
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Which of the following statements is FALSE? O A. The required return is the expected return...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds...
Which of the following statements is FALSE? OA The expected return of a portfolio is equal...
Which of the following statements is FALSE? OA The expected return of a portfolio is equal to the weighted average expected retum, but the volatility of a portfolio is less than the weighted average volatility OB. The overall variability of the portfolio depends on the total co-movement of the stocks within it OC Each security contributes to the volatility of the portfolio according to tavoletity, cated by its covariance with the portfolio, which adust for the fraction of the total...
You are presently invested in the Luther Fund, a broad based mutual fund that invests in 7. (10 pts.) stocks and other securities. The Luther Fund has an expected return of 14% and a volatility of 20...
You are presently invested in the Luther Fund, a broad based mutual fund that invests in 7. (10 pts.) stocks and other securities. The Luther Fund has an expected return of 14% and a volatility of 20%. Risk-free Treasury bills are currently offering returns of 4%. You are considering adding a precious metals fund to your current portfolio. The metals fund has an expected return of 10%, a volatility of 30%, and a correlation of-20 with the Luther Fund. Will...
According to the CAPM, which of the following sentences is incorrect? A. All securities' expected returns...
According to the CAPM, which of the following sentences is incorrect? A. All securities' expected returns must lie on the capital market line (CML). B. All securities' expected returns must be on the security market line (SML). C. The slope of the security market line (SML) must be the market risk premium. D. The slope of the capital market line (CML) is the Sharpe Ratio of the market portfolio. E. A security's beta coefficient will be negative if its return...
Which of the following statements is (are) false regarding the risk of a portfolio of two...
Which of the following statements is (are) false regarding the risk of a portfolio of two risky securities A & B? A. The co-variance of A&B equals the volatility A plus volatility B plus the correlation between A&B B. If the correlation between A & B is -1, a risk free portfolio comprising A &B can be constructed that would have an expected return equal to the risk free rate C. The risk of a portfolio comprising A & B...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio. b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios. c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments...
QUESTION FOUR you are given the following data about expected returns on a security on the...
QUESTION FOUR you are given the following data about expected returns on a security on the US when different states of the economy have the same probability of occurrence 2014 State Return Strong growth 9.0% Normal growth 6.5% Weak growth 2.5% Recession -4.5% Required: Compute and fully interpret the following for the investment: a) The Expected retum for the security. [3 Marks] b) The volatility of the security retums using the standard deviation. [6 Marks] c) Evaluate the security's performance...
The risk-free rate is 0%. The market portfolio has an expected return of 20% and a volatility of 20%. You have $100 to invest. You decide to build a portfolio P which invests in both the risk-free investment and the market portfolio.
The risk-free rate is 0%. The market portfolio has an expected return of 20% and a volatility of 20%. You have $100 to invest. You decide to build a portfolio P which invests in both the risk-free investment and the market portfolio.a. How much should you invest in the market portfolio and the risk-free investment if you want portfolio P to have an expected return of 40%?b. How much should you invest in the market portfolio and the risk-free investment...
QUESTION 4 You are given the following data about expected returns on a Bank security on...
QUESTION 4 You are given the following data about expected returns on a Bank security on the LUSE where different states of the economy have the same probability of occurrence: State Return Strong growth 7.5% Normal growth 5.0% Weak growth 1.5% Recession -2.5% Required: Compute and fully interpret the following for the investment: The Expected return for the security. [5 Marks] The volatility of the security returns using the standard deviation. [6 Marks] The Sharpe ratio of...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds...
Which of the following statements is FALSE? OA The expected return of a portfolio is equal to the weighted average expected retum, but the volatility of a portfolio is less than the weighted average volatility OB. The overall variability of the portfolio depends on the total co-movement of the stocks within it OC Each security contributes to the volatility of the portfolio according to tavoletity, cated by its covariance with the portfolio, which adust for the fraction of the total...
You are presently invested in the Luther Fund, a broad based mutual fund that invests in 7. (10 pts.) stocks and other securities. The Luther Fund has an expected return of 14% and a volatility of 20%. Risk-free Treasury bills are currently offering returns of 4%. You are considering adding a precious metals fund to your current portfolio. The metals fund has an expected return of 10%, a volatility of 30%, and a correlation of-20 with the Luther Fund. Will...
Which of the following statements is (are) false regarding the risk of a portfolio of two risky securities A & B? A. The co-variance of A&B equals the volatility A plus volatility B plus the correlation between A&B B. If the correlation between A & B is -1, a risk free portfolio comprising A &B can be constructed that would have an expected return equal to the risk free rate C. The risk of a portfolio comprising A & B...
3. Which of the following statements are true? Please Explain. a. A lower allocation to the risky portfolio reduces the Sharpe (reward-to-volatility) ratio. b. The higher the borrowing rate, the lower the Sharpe ratios of levered portfolios. c. With a fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. d. Holding constant the risk premium of the risky portfolio, a higher risk-free rate will increase the Sharpe ratio of investments...
QUESTION FOUR you are given the following data about expected returns on a security on the US when different states of the economy have the same probability of occurrence 2014 State Return Strong growth 9.0% Normal growth 6.5% Weak growth 2.5% Recession -4.5% Required: Compute and fully interpret the following for the investment: a) The Expected retum for the security. [3 Marks] b) The volatility of the security retums using the standard deviation. [6 Marks] c) Evaluate the security's performance...
98) Which of the following statements is FALSE A) The volatility declines as the number of stocks in a portfolio grows. B) An equally weighted portfolio is a porfolio in which the same amount is invested in eadh stock C) As the number of stocks in a portfolio grows large, the variance of the portfolio is determined primarily by the average covariance among the stocks D) When combining stocks into a portfolio that puts positive weight on each stock, unless...
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