8:

An investor is building a portfolio of assets W and Z. W has a mean return of 8% and a return standard deviation of 25%. Z has a mean return of 14% and a return standard deviation of 9%. The correlation between their returns is 0.7. The mean return and return standard deviation of an equally weighted portfolio of these two assets are, to the nearest percentage point;

a.22% and 42%

b.11% and 16%

c.11% and 18%

d.22% and 15.98%

9:

In a world of positive interest rates, a bond is priced below its face value. This must mean that; i. Its coupon rate is zero. ii. Its yield to maturity is above its coupon rate. iii. Its duration is high.

Select one:

a.Only i

b.Only ii

c.i and iii

d.ii and iii

10: Consider the following two statements on diversification:

I. Positive stock returns are the same as a positive alpha

II. The diversification benefit only exists when the correlation is not equal to 1 and not equal to -1.

a.Both statements are correct

b.Only statement II is correct

c.Both statements are incorrect

d.Only statement I is correct