1)

By combining lending and borrowing at the risk-free rate with the efficient portfolios, we can: I. extend the range of investment possibilities. II. change efficient set of portfolios from being curvilinear to a straight line. III. provide a higher expected return for higher level of risk except the tangential portfolio.

Select one:

a. I, II, and III

b. I only

c. I and II only

d. I and III only

2)

You are given the table of two securities as below. If the expected market rate of return is 6.5%, and the risk-free rate is 4%, which security would be considered the better buy, and why?

Security	Expected Rate of Return	Beta
M	0.09	0.8
N	0.11	1.3

Select one:

a. N because it has a higher beta.

b. N because it offers an expected excess return of 3.75%.

c. M because it offers an expected excess return of 3.0%.

d. M because it offers an expected excess return of 6.0%.

3)

Based on the outcomes in the following table, choose which of the statements below is (are) correct? I. The correlation coefficient between security A and security C is zero. II. The correlation coefficient between securities B and C is positive. III. The correlation coefficient between securities B and C is negative.

Scenario	Security A	Security B	Security C
Boom	Return = E(r)	Return > E(r)	Return < E(r)
Normal	Return = E(r)	Return = E(r)	Return = E(r)
Recession	Return = E(r)	Return < E(r)	Return > E(r)

Select one:

a. I only

b. I, II, and III

c. I and III only

d. I and II only

4)

Assume you sold short 100 shares of common stock at $55 per share. The initial margin is 65%. What would be the maintenance margin if a margin call is made at stock price of $76?

Select one:

a. 25.4%

b. 23.5%

c. 32.5%

d. 19.4%

5)

A stock with a beta of 0.85 would be expected to:

Select one:

a. increase in returns 15% slower than the market in down markets.

b. increase in returns 85% faster than the market in up markets.

c. increase in returns 85% faster than the market in down markets.

d. increase in returns 15% slower than the market in up markets.