QUESTION 1

1. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has a return volatility of 25%, and Y has a return volatility of 30%. The correlation between X and Y is 0. If you decide to hold a complete portfolio that has a return volatility of 15%, how much should you invest in the Treasury bills?

   		$220
   		$500
   		$1,000
   		$430

QUESTION 2

1. Which of the following is best described as unique/firm-specific risk?

   		rising inflation
   		rising interest rates
   		CEO sudden death
   		global warming

QUESTION 3

1. You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky securities, X and Y. The optimal weights of X and Y in P are 70% and 30%, respectively. X has an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 15%, you should invest __________ of your complete portfolio in the risky portfolio.

   		19%
   		128%
   		81%
   		50%

QUESTION 4

1. You invest 40% of your money in the treasury bill that pays 5% and 60% of your money in a risky portfolio with an expected return of 15% and a volatility of 23%. What is the expected return and volatility of your investment, respectively?

   		A. 10.6%, 18.4%
   		11%, 13.8%
   		9.5%, 9.87%
   		15.2%, 22.3%