Question Number Question 1 Which of the following statements concerning the Markowitz efficient frontier is correct?

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Which of the following statements concerning the Markowitz efficient frontier is correct? A portfolio that offers the highest rate of return with the lowest degree of risk is on the efficient frontier. A portfolio that offers the lowest rate of return for a higher degree of risk is on the efficient frontier. A portfolio that offers the lowest degree of risk for a given rate of return is above the efficient frontier. A portfolio that offers the highest rate of return for a given degree of risk is on the efficient frontier. 2 The goal of asset alloction is to reduce risk through diversification by having exposure to a variety of investments that perform differently during different market conditions. According to Schwab, in recent years the following has changed: Assets are more correlated Less external shocks Bond yields are low Expected stock retruns are lower I, II, III I, III, IV I, II, IV II, III, IV 3 Which of the following statements concerning beta coefficients is (are) correct? Investors who tend to be risk averse should have portfolio made up mostly of high-beta coefficient securities Beta coefficients of particular securities change over time. Beta coefficients are constructed based on past data. (I) only (I) and (III) only (I) and (II) only (II) and (III) only 4 List three advantages of asset allocation Smooths out the ups and downs of the market Shows that is pays to have your eggs in one baseket Allows for diversification Helps to mitigate downside risk (I), (II), (III) (I), (III), (IV) (II), (III), (IV) (I), (II), (IV) 5 Which of the following is not likely to be found in the portfolio of a typical money market mutual fund? Collateralized mortgage obligations (CMOs) U.S. Treasury bills Negotiable certificates of deposit Commercial paper 6 According to Harry Markowitz, the only “free lunch in finance” is: When assets move in harmony, then a diversified portfolio will have less risk. A diversified portfolio cannot deliver more than the sum of its parts. Perfectly correlated individuals assets provide this “free lunch”. Diversification can deliver benefits over time at no additional cost .

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Which of the following statements concerning the Markowitz efficient frontier is correct? A portfolio that offers the highest rate of return with the lowest degree of risk is on the efficient frontier. A portfolio that offers the lowest rate of return for a higher degree of risk is on the efficient frontier. A portfolio that offers the lowest degree of risk for a given rate of return is above the efficient frontier. A portfolio that offers the highest rate of return for a given degree of risk is on the efficient frontier. 2 The goal of asset alloction is to reduce risk through diversification by having exposure to a variety of investments that perform differently during different market conditions. According to Schwab, in recent years the following has changed: Assets are more correlated Less external shocks Bond yields are low Expected stock retruns are lower I, II, III I, III, IV I, II, IV II, III, IV 3 Which of the following statements concerning beta coefficients is (are) correct? Investors who tend to be risk averse should have portfolio made up mostly of high-beta coefficient securities Beta coefficients of particular securities change over time. Beta coefficients are constructed based on past data. (I) only (I) and (III) only (I) and (II) only (II) and (III) only 4 List three advantages of asset allocation Smooths out the ups and downs of the market Shows that is pays to have your eggs in one baseket Allows for diversification Helps to mitigate downside risk (I), (II), (III) (I), (III), (IV) (II), (III), (IV) (I), (II), (IV) 5 Which of the following is not likely to be found in the portfolio of a typical money market mutual fund? Collateralized mortgage obligations (CMOs) U.S. Treasury bills Negotiable certificates of deposit Commercial paper 6 According to Harry Markowitz, the only “free lunch in finance” is: When assets move in harmony, then a diversified portfolio will have less risk. A diversified portfolio cannot deliver more than the sum of its parts. Perfectly correlated individuals assets provide this “free lunch”. Diversification can deliver benefits over time at no additional cost .

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