Consider a portfolio of two risky assets with the following distribution of rates of return on risky assets for questions 20 and 21.The portfolio is 55%Risky Asset 1 and 45%Risky Asset 2,and the correlation coefficient is 0.4. Risky Asset 1 Risky Asset 2 Mean 0.16 0.09 Standard Deviation 0.25 0.18 20.What is the mean of this portfolio? (a)0.1215 (b)0.1285 (c)0.2005 (d)0.2185 Answer:(b) 21.What is the standard deviation of this portfolio? (a)0.15958 (b)0.18541 (c)0.25467 (d0.34378 Answer:(b) Consider a portfolio of two risky assets with the following distribution of rates of return on risky assets for questions 22 and 23.The portfolio is 70%Risky Asset 1 and 30%Risky Asset 2,and the correlation coefficient is 0.3. Risky Asset 1 Risky Asset 2 Mean 0.12 0.20 Standard Deviation 0.16 0.30 22.What is the mean of this portfolio? (a)0.1716 (b)0.1600 (c)0.1414 (d)0.1320 Answer:(c) 12-6
12-6 Consider a portfolio of two risky assets with the following distribution of rates of return on risky assets for questions 20 and 21. The portfolio is 55% Risky Asset 1 and 45% Risky Asset 2, and the correlation coefficient is 0.4. Risky Asset 1 Risky Asset 2 Mean Standard Deviation 0.16 0.25 0.09 0.18 20. What is the mean of this portfolio? (a) 0.1215 (b) 0.1285 (c) 0.2005 (d) 0.2185 Answer: (b) 21. What is the standard deviation of this portfolio? (a) 0.15958 (b) 0.18541 (c) 0.25467 (d) 0.34378 Answer: (b) Consider a portfolio of two risky assets with the following distribution of rates of return on risky assets for questions 22 and 23. The portfolio is 70% Risky Asset 1 and 30% Risky Asset 2, and the correlation coefficient is 0.3. Risky Asset 1 Risky Asset 2 Mean Standard Deviation 0.12 0.16 0.20 0.30 22. What is the mean of this portfolio? (a) 0.1716 (b) 0.1600 (c) 0.1414 (d) 0.1320 Answer: (c)
23.What is the standard deviation of this portfolio? (a)0.16338 (b)0.14368 (c)0.02669 (d0.02064 Answer:(a) 24.In practice,the vast majority of assets are positively correlated with each other because they are all affected by (a)common economic factors (b)firm specific factors (c)potential lawsuits (d)managerial inefficiencies Answer:(a) 25.A mutual fund company offers a safe money market fund whose current rate is 0.04.The same company also offers an equity fund with an aggressive growth objective,which historically has exhibited an expected return of 0.25 and a standard deviation of 0.30.Derive the equation for the risk- reward trade-off line. (aEr）=0.04+0.25o (b)Er)=0.04+0.7o (c)Er）=0.04+0.21o (dEr）=0.04+0.83o Answer:(b) 26.The refers to the set of portfolios of risky assets offering the highest possible expected rate of return for any given standard deviation. (a)minimum portfolio frontier (b)effective portfolio frontier (c)expected portfolio frontier (d)efficient portfolio frontier Answer:(d) 12-7
12-7 23. What is the standard deviation of this portfolio? (a) 0.16338 (b) 0.14368 (c) 0.02669 (d) 0.02064 Answer: (a) 24. In practice, the vast majority of assets are positively correlated with each other because they are all affected by ________. (a) common economic factors (b) firm specific factors (c) potential lawsuits (d) managerial inefficiencies Answer: (a) 25. A mutual fund company offers a safe money market fund whose current rate is 0.04. The same company also offers an equity fund with an aggressive growth objective, which historically has exhibited an expected return of 0.25 and a standard deviation of 0.30. Derive the equation for the riskreward trade-off line. (a) E(r) = 0.04 + 0.25σ (b) E(r) = 0.04 + 0.7σ (c) E(r) = 0.04 + 0.21σ (d) E(r) = 0.04 + 0.83σ Answer: (b) 26. The ________ refers to the set of portfolios of risky assets offering the highest possible expected rate of return for any given standard deviation. (a) minimum portfolio frontier (b) effective portfolio frontier (c) expected portfolio frontier (d) efficient portfolio frontier Answer: (d)