Question 10 An optimizer is used to generate mean-variance optimal portfolios. Some of the portfolios contain weightings of over 100% in international fixed income, the majority of which is offset by large short positions in local fixed income. What is the most likely source of this result? (a) International fixed income is clearly the much more attractive asset. (b) International fixed income has been given a higher expected return, while both asset classes make a similar contribution to total portfolio risk. (c) Stems from the failure of mean-variance analysis to take into account any skewness in the return distribution. (d) This outcome is a function of the assumed investment horizon. (e) The optimizer package contains a bug. Question 11 Under the taxonomy of alpha' versus 'beta', which of the following best describes the 'industry' definition of beta? (a) Any market exposure that can be cheaply replicated (b) Sensitivity to returns on some broad-based equity index, e.g. S&P500, MSCI World Index (c) Returns generated from market timing (d) Some priced, non-diversifiable risk factor (e) None of the above