1.On pretax and basis The S&P 500 Index outperformed the BlackRock Capital Appreciation Fund between 9/2003 and 9/2012.

True or False?

1. 2.You are given the following information:

   Asset 1 and asset 2 returns are random. In fact you think that the returns are independent and evenly distributed between -1% and 5%. In Excel this is (=RANDBETWEEN(1,5)/100)

   A portfolio divided equally between asset 1 and asset 2 is inferior to either 100% invested in asset A or 100% invested in asset 2 if our investment criterion is to minimize the ratio of risk to reward.

   (You use a sample of at least 50 returns before you make conclusions.)

   True

   False

2. 1. 3.Between 1969 and 2009 the two year rolling correlation between the S&P 500 and the MSCI EAFE Index has been steady at .4.

      True

      False

   2. 1. 4.It is possible to combine risky assets in proportions such that the resulting portfolio has less risk than the assets themselves.

         True

         False

      2. 1. 5.Daniel Kahneman has shown that investors are frequently overconfident and this overconfidence leads to poor judgments regarding investments.

            True

            False

         2. 1. 6.Yield premiums of Baa rated bonds relative to ten year treasury bonds were higher in June 2006 than in November 2013.

               True

               False

            2. 7.

            3. An investor who buys one year treasury notes in year 1 and then rolls over the principal into new investments in one year treasury notes every year for 30 years will have locked in certain annual rate of return for 30 years.

               True

               False