Question 1

Which of the following statements is FALSE?

A.A stock's return is perfectly positively correlated with itself.

B.The variance of a portfolio depends only on the variance of the individual stocks.

C.The closer the correlation is to 1, the more the returns tend to move in opposite directions.

D.When the covariance equals 0, the stocks have no tendency to move either together or in opposition of one another.

Question 2

Consider the following average annual returns:

InvestmentAverage Return

Small Stocks20.9%

S&P 50013.3%

Corporate Bonds7.5%

Treasury Bonds6.2%

Treasury Bills3%

The excess return for the portfolio of small stocks is _____%.

Question 3

Consider the following covariances between securities:

DukeMicrosoftWalmart

Duke0.05680.01930.0037

Microsoft 0.01930.24200.1277

Walmart0.00370.12770.1413

The variance on a portfolio that is made up of a $2,201 investments in Duke and a $3,245 investment in Walmart stock is ________.