Question 1ai)

Please choose one option out of the four.

The relation between the real risk-free interest rate and real GDP growth is:

-neutral.

-negative.

-dependent on the phase of the business cycle.

-positive.

Question 1aii)

Please choose one option out of the four.

For an equally weighted portfolio made up of a large number of assets, which of the following contributes the most to the volatility of the portfolio:

-Average covariance between all pairs of assets.

-Average variance of the individual assets.

-Standard deviation of the individual assets.

-None of the listed choices.

Question 1aiii)

Please choose one option out of the four.

A portfolio manager creates the following portfolio:

Security	Weight	Standard deviation
1	0.2	0.20
2	0.8	0.12

If the correlation of returns between the two securities is 0.40, the standard deviation of the portfolio is closest to:

-11.3%.

-12.1%.

-10.7%.

-11.8%.

Question aiv)

Please choose one option out of the four.

Compared to the efficient frontier of risky assets, the capital allocation line has higher rates of return for levels of risk greater than the optimal risky portfolio because of the investors ability to:

-purchase the risk-free asset.

-borrow at the risk-free rate.

-lend at the risk-free rate.

-lend the risk-free asset.

Question av)

Please choose one option out of the four.

The equity portion of your clients portfolio has produced an annualised return of 20% for the past three years. As a result, your clients equity allocation has increased to 70%, which is greater than the recommended allocation of 60%. However, your client is reluctant to take money out of stocks, expressing confidence that strong investment returns will continue. Which psychological trap may your client be susceptible to?

-Anchoring trap.

-Confirming evidence trap.

-Prudence trap.

-Status quo trap.