d. 10 percent FA1) An analyst estimates that a stock has the following return probabi ilities and returns depending on the state of the economy; State of Economy Good Normal Poor Return 15% 13 Probability What is the expected return of the stock? a. 7.8 percent b. 11.4 percent c. 11.7 percent d. 13.0 percent 5. Risk Aversion (L.O3, CFA4) Which of the following statements best reflects the importance of the asset allocation decision to the investment process? The asset allocation decision a. Helps the investor decide on realistic investment goals. b. Identifies the specific securities to include in a portfolio. c. Determines most of the portfolio's returns and volatility over time d. Creates a standard by which to establish the appropriate investment time horizon. 6. Eficient Frontier (L04, CFA5) The Markowitz efficient frontier is best described as the set of portfolios that has a. The minimum risk for every level of return. b. Proportionally equal units of risk and return. cThe maximum excess rate of return for every given level of risk. d. The highest return for each level of beta used on the capital asset pricing model. 7. Diversification (L.O3, CFA3) An investor is considering adding another investment to a port- folio. To achieve the maximum diversification benefits, the investor should add an investment that has a correlation coefficient with the existing portfolio closest to a. 1.0