1 Adding which kind of assets are most likely to improve the Sharpe Ratio of a portfolio? Those with?

A, Strong positive correlations with the portfolio

B, Strong negative correlations with the portfolio

C, Zero correlation with the portfolio

D, Weak negative correlations with the portfolio

2 Which of the following statements is true about the CAPM?

A, Everyone fully invests in the tangency portfolio

B ,Only risk tolerant investors purchase the tangency portfolio

C, Everyone holds the same risky assets and owns the same weights within those risky assets.

D, Everyone has the same expected return

3 Would you ever add a risky asset with a return below the risk free rate to a portfolio?

A, Yes, if the risk is high enough it overcomes the low return.

B, No, investors seek return and dislike risk.

C, Yes, if it is negatively correlated with the portfolio.

D, No, it would lower the Sharpe ratio.

4 Suppose you have two uncorrelated assets with the following characteristics:

mu A = 12 sigma A = 10

mu B = 22 sigma B = 18

Which of the following statements is true?

A, For some weights, you can produce a risk free portfolio

B, For some weights, you can produce a portfolio with mu>22 and sigma<18

C, For some weights, you can produce a portfolio with mu<12 and sigma<10

D, For some weights, you can produce a portfolio with mu > 12 and sigma < 10

5 If the Beta for a stock is 1.6, which of the following is true?

A, The stock is risky and you can eliminate that risk by combining it with other high Beta assets.

B, The stock is risky and you can eliminate it by combining it with a negatively correlated asset with Beta=1.6.

C, The stock is risky and that risk is systematic.

D, The stock is safe and you should leverage your position to increase returns.