Question 1

A well diversified portfolio will typically consist of a mix of small, mid and large cap stocks, both U.S. and foreign, as well as corporate and U.S. Treasury bonds, real estate and commodities.

Accepted Answer

A) True 
 B)False

Question 2

Discuss the importance of the asset allocation decision for portfolio performance.

Accepted Answer

Deciding what percentage of portfolio fu...

Question 3

According to Markowitz, an efficient portfolio is one that has the

Accepted Answer

A)   largest expected return for the smallest level of risk
B)   largest expected return and zero risk
C)   largest expected return for a given level of risk
D)   smallest level of riskE) None of the above
F) A) and D)

Question 4

The optimal portfolio is the efficient portfolio with the

Accepted Answer

A)   lowest risk
B)   highest risk
C)   highest utility
D)   least investmentE) All of the above
F) None of the above

Question 5

Asset allocation is one of the most widely used applications of:

Accepted Answer

A)   the Capital Asset Pricing Model.
B)   random diversification.
C)   passive portfolio approach.
D)   modern portfolio theory.E) None of the above
F) C) and D)

Question 6

Systematic risk is also called:

Accepted Answer

A)   diversifiable risk
B)   market risk
C)   random risk
D)   company-specific riskE) A) and C)
F) B) and D)

Question 7

A portfolio which lies below the efficient frontier is described as

Accepted Answer

A)   optimal
B)   unattainable
C)   dominant
D)   dominatedE) A) and B)
F) A) and C)

Question 8

Which of the following is not one of the assumptions of portfolio theory?

Accepted Answer

A)   Liquidity of positions
B)   Investor preferences are based only on expected return and risk
C)   Low transactions costs
D)   A single investment periodE) A) and B)
F) None of the above

Question 9

Which of the following is true regarding the Markowitz Model as covered in this chapter?

Accepted Answer

A)   It fully addresses the use of leverage
B)   Investors must have homogeneous expectations about model parameters
C)   Investors must be better off if they invest in portfolios to the Northwest of the efficient frontier
D)   Markowitz diversification is inefficient diversificationE) All of the above
F) None of the above

Question 10

Which of the following is not true regarding the Markowitz theory?

Accepted Answer

A)   Markowitz portfolio theory is considered a three-parameter model
B)   Under the Markowitz model, no portfolio on the efficient frontier dominates any other portfolio on the efficient frontier
C)   The Markowitz model is cumbersome to work with due to the large variance-covariance matrix needed for a set of stocks
D)   Markowitz portfolio theory is a multi-period model generates an entire set, or efficient frontier, of portfoliosE) A) and B)
F) C) and D)

Question 11

Markowitz derived the efficient frontier as an upward-sloping straight line.

Accepted Answer

A) True 
 B)False

Question 12

When the Markowitz model assumes that most investors are considered to be "risk averse", this really means that they:

Accepted Answer

A)   will not take a "fair gamble"
B)   will take a "fair gamble"
C)   will take a "fair gamble" fifty percent of the time
D)   will never assume investment riskE) None of the above
F) B) and D)

Question 13

Under the Markowitz model, the risk of a portfolio is measured by the standard deviation of the portfolio return.

Accepted Answer

A) True 
 B)False

Question 14

Explain what is efficient about the efficient frontier.

Accepted Answer

Any portfolio on the efficient...

Question 15

Distinguish between systematic and nonsystematic risk. What are two other names for each? Give examples of each.

Accepted Answer

Systematic risk is also called market ri...

Question 16

It would be impossible to combine an asset allocation plan with Markowitz analysis.

Accepted Answer

A) True 
 B)False

Question 17

A major assumption of the Markowitz model is that investors base their decisions strictly on expected return and risk factors.

Accepted Answer

A) True 
 B)False

Question 18

Indifference curves:

Accepted Answer

A)   always curve to the left
B)   have a positive slope
C)   cannot intersect
D)   are convexE) All of the above
F) A) and D)

Question 19

Based on recent history, an investor would probably have a lower risk level with a portfolio consisting of:

Accepted Answer

A)   all stocks
B)   all bonds
C)   some stocks and some bonds
D)   Impossible to tellE) B) and D)
F) C) and D)

Question 20

To implement the single-index model, estimates of the _______for each stock are needed.

Accepted Answer

A)   expected return
B)   standard deviation
C)   beta
D)   covarianceE) A) and B)
F) B) and D)

Exam 8: Portfolio Selection for All Investors

Which of the following is not true regarding the Markowitz theory?

Correct AnswerverifiedShow Answer

When the Markowitz model assumes that most investors are considered to be "risk averse", this really means that they:

Correct AnswerverifiedShow Answer

Distinguish between systematic and nonsystematic risk. What are two other names for each? Give examples of each.

Correct AnswerverifiedSystematic risk is also called market ri...View AnswerShow Answer

According to Markowitz, an efficient portfolio is one that has the

Correct AnswerverifiedShow Answer

It would be impossible to combine an asset allocation plan with Markowitz analysis.

Correct AnswerverifiedShow Answer

Explain what is efficient about the efficient frontier.

Correct AnswerverifiedAny portfolio on the efficient...View AnswerShow Answer

Markowitz derived the efficient frontier as an upward-sloping straight line.

Correct AnswerverifiedShow Answer

Which of the following is true regarding the Markowitz Model as covered in this chapter?

Correct AnswerverifiedShow Answer

Under the Markowitz model, the risk of a portfolio is measured by the standard deviation of the portfolio return.

Correct AnswerverifiedShow Answer

The optimal portfolio is the efficient portfolio with the

Correct AnswerverifiedShow Answer

Which of the following is not one of the assumptions of portfolio theory?

Correct AnswerverifiedShow Answer

To implement the single-index model, estimates of the _______for each stock are needed.

Correct AnswerverifiedShow Answer

Indifference curves:

Correct AnswerverifiedShow Answer

A well diversified portfolio will typically consist of a mix of small, mid and large cap stocks, both U.S. and foreign, as well as corporate and U.S. Treasury bonds, real estate and commodities.

Correct AnswerverifiedShow Answer

Systematic risk is also called:

Correct AnswerverifiedShow Answer

Based on recent history, an investor would probably have a lower risk level with a portfolio consisting of:

Correct AnswerverifiedShow Answer

A portfolio which lies below the efficient frontier is described as

Correct AnswerverifiedShow Answer

Asset allocation is one of the most widely used applications of:

Correct AnswerverifiedShow Answer

A major assumption of the Markowitz model is that investors base their decisions strictly on expected return and risk factors.

Correct AnswerverifiedShow Answer

Discuss the importance of the asset allocation decision for portfolio performance.

Correct AnswerverifiedDeciding what percentage of portfolio fu...View AnswerShow Answer

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Systematic risk is also called market ri...
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Any portfolio on the efficient...
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Deciding what percentage of portfolio fu...
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