QUESTION 1

1. Which of the following statements is correct, according to portfolio theory?

		An investors risk aversion level should determine the optimal risky portfolio.
		An investors risk aversion level should determine the capital allocation to the risky portfolio.
		All investors will invest in the same optimal complete portfolio.
		The optimal risky portfolio is one with the highest expected return.

QUESTION 2

1. Assume the CAPM is correct. Which of the following statements is correct?

		The optimal risky portfolio has 100% invested in TESLA stock.
		Investors risk aversion levels does not affect their optimal portfolio decisions.
		The optimal risky portfolio consists of all risky assets.
		100% invested in the market portfolio gives investors the highest expected return.

0.6 points

QUESTION 3

1. In a simple CAPM world which of the following statements is (are) correct?

I. All investors will choose to hold the market portfolio, which includes all risky assets in the world. II. Investors' complete portfolios do not depend on their risk aversion. III. All individual assets are below the Capital Market Line. IV. The market portfolio will be on the efficient frontier, and it will be the optimal risky portfolio.

		I, II, III, and IV
		I, II, and III only
		I, III, and IV only
		I, II, and IV only

QUESTION 4

1. According to the CAPM, which of the following is not a true statement regarding the market portfolio.

		All securities in the market portfolio are held in proportion to their market values.
		It includes all risky assets in the world.
		It is always the minimum-variance portfolio on the efficient frontier.
		It lies on the efficient frontier.

QUESTION 5

1. Investors can form complete portfolios out of a risk-free asset and a risky portfolio. The risky portfolio can be formed out of 2 risky stocks: AAPL with an expected return of 10% and volatility of 15%, and MSFT with an expected return of 14% and volatility of 18%. Mary is more risk averse than Tom and both has a total of $1000 to invest in the risky assets. According to portfolio theory, which of the following is consistent with both investors making the optimal portfolio choices?

		Mary invests $1000 in AAPL and $0 in MSFT; Tom invests $0 in AAPL and $1000 in MSFT.
		Mary invests $0 in AAPL and $1000 in MSFT; Tom invests $1000 in AAPL and $0 in MSFT.
		Mary invests $500 in AAPL and $500 in MSFT; Tom invests $900 in AAPL and $100 in MSFT.
		Mary invests $200 in AAPL and $800 in MSFT; Tom invests $200 in AAPL and $800 in MSFT.