a-An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24% while the standard deviation on stock B is 14%. The correlation coefficient between the return on A and B is 0.35. The expected return on stock A is 25% while on stock B it is 11%. The proportion of the minimum variance portfolio that would be invested in stock B is approximately _________.

1. 92%
2. 45%
3. 85%
4. 67%

b-A measure of the riskiness of an asset held in isolation is _____________.

1. beta
2. covariance
3. standard deviation
4. semi-variance

c.According to the capital asset pricing model, a security with a _________.

1. positive alpha is considered overpriced
2. positive alpha is considered underpriced
3. negative alpha is considered a good buy
4. zero alpha is considered a good buy

d.The graph of the relationship between expected return and beta in the CAPM context is called

1. SML - security market line
2. CAL - capital allocation line
3. CML - capital market line
4. SCL - security capital line

e.Plaid Pants, Inc. common stock has a beta of 0.90, while Acme Dynamite Company common stock has a beta of 1.80. The expected return on the market is 10 percent, and the risk-free rate is 6 percent. According to the capital-asset pricing model (CAPM) and making use of the information above, the required return on Plaid Pants' common stock should be---------, and the required return on Acme's common stock should be--------.

1. 9.6 percent; 13.2 percent
2. 9.0 percent; 18.0 percent
3. 14.0 percent; 23.0 percent
4. 3.6 percent; 7.2 percent

f.Stock A has a beta of 0.8 and Stock B has a beta of 1. The returns of Stock A are ______ sensitive to changes in the market as the returns of Stock B.

1. 20% more
2. slightly less
3. slightly more
4. 20% less

g.The standard deviation of return on stock A is 0.25. The standard deviation of return on stock B is 0.30. If covariance of returns on A and B is 0.06, the correlation coefficient between the returns on A and B is

1. 0.6
2. 0.2
3. 0.7
4. 0.8

h.Information about return on an investment is as follows: Risk free rate 10% - Market Return is 15% - Beta is 1.2 What would be the required return from this investment?

1. 18%
2. 14%
3. 16%
4. 12%

i.Stock A has an expected return of 25% and a beta of 2.0. Stock B has an expected return of 18% and a beta of 1.5. The market risk premium is 8%. If the risk free rate is 7%, then

1. B is an acceptable investment, A is not.
2. Neither A nor B is acceptable investment
3. A is an acceptable investment, B is not.
4. Both are acceptable since each has a positive alpha value.

j. According to the capital asset pricing model, fairly priced securities have _________.

1. negative betas
2. positive alphas
3. zero alphas
4. positive betas

12.An investor's degree of risk aversion will determine his or her _______.

1. optimal mix of the risk-free asset and optimal risky asset d. capital allocation line
2. none of the above
3. set of efficient portfolios
4. risk-free rate

k.A portfolio is composed of two stocks, A and B. Stock A has a standard deviation of return of 24% while stock B has a standard deviation of return of 18%. Stock A comprises 60% of the portfolio while stock B comprises 40% of the portfolio. If the variance of return on the portfolio is .0380, the correlation coefficient between the returns on A and B is ________

1. 0.225
2. 0.128
3. 0.583
4. 0.327