QUESTION 5

1. Which of the following correlation coefficients will produce the least diversification benefit?

   		-0.8
   		-0.5
   		0.4
   		0.2

QUESTION 6

1. An investor's degree of risk aversion will determine his or her

   		optimal risky portfolio
   		risk-free rate
   		optimal mix of the risk-free asset and risky asset
   		capital allocation line

QUESTION 7

1. Your portfolio has 20% invested in stock A and 80% invested in stock B. Stock A has an expected return of 10% and a volatility of 15%. Stock B has an expected return of 12% and volatility of 25%. The correlation between stock A and B is -0.2. What is the variance of your portfolio return?

   		0.0385
   		0.0587
   		0.0257
   		0.0897

QUESTION 8

1. Asset A has an expected return of 20% and a reward-to-volatility (Sharpe) ratio of 0.4. Asset B has an expected return of 15% and a reward-to-volatility (Sharpe) ratio of 0.7. A risk-averse investor would prefer a portfolio using the risk-free asset and ______.

   		Asset A
   		Asset B
   		A and B are the same to the investor
   		The answer cannot be determined from the data given.