1) Suppose you invest your money evenly between two assets when you expect the correlation between their returns to be 0.2. While holding the two assets, however, they experience much higher correlation of 0.8. The difference in performance between what you expected and what you received is:

A. expected returns and standard deviation in returns are both higher

B. expected returns and standard deviation in returns are both lower

C. expected returns are higher, but standard deviation in returns is as expected

D. expected returns are as expected, but standard deviation in returns is higher

2) In the Wall Street Journals darts versus pros competition, the difference in returns generated by the two portfolios is explained by:

I. the darts were poorly thrown

II. the pros pick riskier stocks

III. other investors buying the stocks that the pros pick

IV. the pros are simply good at picking stocks

A. I and II

B. II only

C. IV only

D. II and III

3) __________ is a false statement regarding open-end mutual funds.

A. They offer investors a guaranteed rate of return

B. They offer investors a well diversified portfolio

C. They redeem shares at their net asset value

D. None of the above (A, B, and C are all true)

4) When we analyze the performance of an actively managed mutual fund we find that the fund generated a beta of 1.5 and an alpha of zero.

A. this result shows that the manager took relatively high risk when investing

B.this result shows that the manager did not add any value to performance with his/her decision-making

C. both (A) and (B) are true

D. none of the above

5) An attractive feature of Exchange Traded Funds (ETFs) is:

A. the price of the fund always matches the Net Asset Value

B. the investor has more control over tax implications of trading than with a mutual fund

C. ETFs only trade once a day, making it easier to keep track of their prices.

D. the fund is highly likely to produce a positive alpha