3. The welfare score assigned by each investor to competing portfolios on the basis of the expected return and risk of those portfolios is popularly known as

Select one:

a.Portfolio return

b.Risk premium

c.Utility

d.Gross Domestic Product (GDP)

5. Which of the following statements is TRUE?

Select one:

a.If the risk premium of a portfolio is zero or negative, its certainty equivalent rate will be below that of the risk-free alternative for any risk-averse investor.

b.If the risk premium of a portfolio is zero or positive, its certainty equivalent rate will be below that of the risk-free alternative for any risk-averse investor.

c.If the risk premium of a portfolio is zero or negative, its certainty equivalent rate will be above that of the risk-free alternative for any risk-averse investor.

d.If the risk premium of a portfolio is zero or negative, its certainty equivalent rate will be below that of the risk-free alternative for any risk-seeker investor.

25. If you invest in virtually risk-free short-term T-bills and a fund of common stocks that mimics a broad market index, we can say that you are following:

Select one:

a.Active strategy

b.Passive strategy

c.Security analysis

d.Aggressive strategy

22. The slope of CAL is useful in

Select one:

a.measuring the standard deviation of returns

b.analysing returns on variable-rate bonds

c.understanding capital structure of a firm

d.understanding how returns increase relative to risk increases

13. The tangency point between capital allocation line and indifference curve corresponds to the expected return and standard deviation of

Select one:

a.Maximum return portfolio

b.Optimal risky portfolio

c.Optimal complete portfolio

d.Minimum variance portfolio

27. The strategy of investing in a risk-free short-term T-bill and a fund of common stocks that mimics a broad market index is represented by

Select one:

a.Capital Allocation Line (CAL)

b.Capital Market Line (CML)

c.Security Market Line (SML)

d.Capital asset pricing model (CAPM)

Question7

Not yet answered

Marked out of 1.00

Flag question

Question text

30. The value of risk aversion in utility function for risk-averse, risk-lover and risk-neutral investors are

Select one:

a.Less than zero, zero and greater than zero respectively

b.Greater than zero, less than zero and zero respectively

c.Greater than zero, zero and less than zero respectively

d.Zero, less than zero and greater than zero respectively

2. Which of the following statements is not TRUE?

Select one:

a.Risk averse investors consider only risk-free or speculative prospects with positive risk premiums.

b.Risk-averse investors do not penalize the expected rate of return of a risky portfolio

c.A portfolio is more attractive when its expected return is higher and its risk is lower.

d.None of the above.

16. Which of the following statements is TRUE?

Select one:

a.An investor would prefer a portfolio on the higher indifference curve

b.Portfolio on higher indifference curve offer a higher expected return for any given level of risk

c.Portfolio on higher indifference curve offer lower risk for any given level of expected return.

d.All of the above

28. The change from a straight to a kinked capital allocation line is the result of the:

Select one:

a.Sharpe ratio increasing

b.Borrowing rate exceeding the lending rate

c.Increase in the portfolio proportion of the risk-free asset

d.Investor's risk tolerance increasing

29. The variable A in the utility function represents the

Select one:

a.Certainty equivalent rate of the portfolio

b.Investor's aversion of risk

Investor's return requirement

c.Investor's return requirement

d.None of the above

10. Capital allocation line (CAL) is the

Select one:

a.Set of feasible expected return and standard deviation pairs of all portfolios formed with a risky asset and a risk-free asset

b.set of all portfolios that offer the same utility to a particular investor

c.set of all portfolios that offer a certain expected rate of return for different standard deviations

d.set of all portfolios that offer a certain level of standard deviations for different expected rates of return

4. The __________ is a natural way to compare the utility values of competing portfolios.

Select one:

a.Certainty equivalent rate

b.Risk-return profile

c.Expected rate of return

d.Standard deviation

Question14

Not yet answered

Marked out of 1.00

Flag question

Question text

24. To build an indifference curve, we can first find the utility of a portfolio with 100% in the risk-free asset, then

Select one:

a.find the utility of a portfolio with 0% in the risk-free asset

b.change the risk-free rate and find the utility level that results in the same standard deviation

c.change the expected return of the portfolio and equate the utility to the standard deviation

d.change the standard deviation of the portfolio and find the expected return the investor would require to maintain the same utility level.

9. An investor with a risk-aversion coefficient of 3 would choose the asset with an expected rate of return of ______ and a standard deviation of ________ respectively.

Select one:

a.12%, 20%

b.10%, 10%

c.10%, 15%

d.8%, 10%.