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Exam 6: Efficient Diversification

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Question 41

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Many current and retired Enron Corp.employees had their 401k retirement accounts wiped out when Enron collapsed because ___.

A) they had to pay huge fines for obstruction of justice
B) their 401k accounts were held outside the company
C) their 401k accounts were not well diversified
D) none of the above

E) C) and D)
F) B) and C)

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Question 42

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The stock is ______ riskier than the typical stock.

A) 32%
B) 15.44%
C) 12%
D) 38%

E) None of the above
F) All of the above

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Question 43

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Rational risk-averse investors will always prefer portfolios _____________.

A portfolio of stocks fluctuates when the treasury yields change.Since this risk can not be eliminated through diversification,it is called __________.

The beta of this stock is ____.

An investor can design a risky portfolio based on two stocks,A and B. The standard deviation of return on stock A is 20% while the standard deviation on stock B is 15%. The expected return on stock A is 20% while on stock B it is 10%. The correlation coefficient between the return on A and B is 0%. The expected return on the minimum variance portfolio is approximately _________.

Beta is a measure of security responsiveness to _________.

To eliminate the bias in calculating the variance and covariance of returns from historical data the average squared deviation must be multiplied by _________.

The part of a stock's return that is systematic is a function of which of the following variables? I.Volatility in excess returns of the stock market II.The sensitivity of the stock's returns to changes in the stock market III.The variance in the stock's returns that is unrelated to the overall stock market

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated.The global minimum variance portfolio has a standard deviation that is always _________.

Diversification can reduce or eliminate __________ risk.

____ percent of the variance is explained by this regression.

You find that the annual standard deviation of a stock's returns is equal to 25%.For a 3 year holding period the standard deviation of your total return would equal _______.

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 10%. -The standard deviation of return on the optimal risky portfolio is _________.

A measure of the riskiness of an asset held in isolation is ____________.

What is the standard deviation of a portfolio of two stocks given the following data? Stock A has a standard deviation of 30%.Stock B has a standard deviation of 18%.The portfolio contains 60% of stock A and the correlation coefficient between the two stocks is -1.0.

Diversification is most effective when security returns are _________.

Reward-to-variability ratios are ________ on the ________ capital market line.

According to Tobin's separation property,portfolio choice can be separated into two independent tasks consisting of __________ and __________.

Investing in two assets with a correlation coefficient of -0.5 will reduce what kind of risk?