1.

If your portfolio consisted of two stocks, which of the following correlations would be the most desirable?

0, the lowest possible correlation

1, the highest possible correlation

-1, the lowest possible correlation

any value other than 0

any value other than -1

2. Which of the following is the strongest source for systematic risk?

a. Consumer sentiment may decline, causing consumer spending to also decline.

b. A talented CEO of a company may suddenly die.

c.A company's employees strike.

d.Consumer tastes shift from carbonated beverages to juice.

3.

Calculate the standard deviation of S&Ps return for the years 1926 to 1930

Round to the nearest hundredth. Answer in percent. Year 1926 1927 1928 1929 1930 Return 13.45% 31.96% 44.59% 6.81% 26.79%

4.

Suppose that we found the average return for the S&P 500 from 2010 to 2014 to be 13.37% with a standard deviation of 7.13%. What is a 95% prediction interval for 2015s return?

13.37%

27.64%

-0.89%

Between -0.89% and 27.63%

5.

When evaluating a large portfolio....

...it does not make sense to measure risk by standard deviation

calculate the standard deviation of the portfolio by taking the simple average of the individual stocks' standard deviations

the reward to risk ratio will usually be less than that of an individual stock

standard deviation provides a good measure of risk when comparing it to the return of the portfolio