Question Number	Question
1	Which of the following statements concerning the Markowitz efficient frontier is correct? A portfolio that offers the highest rate of return with the lowest degree of risk is on the efficient frontier. A portfolio that offers the lowest rate of return for a higher degree of risk is on the efficient frontier. A portfolio that offers the lowest degree of risk for a given rate of return is above the efficient frontier. A portfolio that offers the highest rate of return for a given degree of risk is on the efficient frontier.
2	The goal of asset alloction is to reduce risk through diversification by having exposure to a variety of investments that perform differently during different market conditions. According to Schwab, in recent years the following has changed: Assets are more correlated Less external shocks Bond yields are low Expected stock retruns are lower I, II, III I, III, IV I, II, IV II, III, IV
3	Which of the following statements concerning beta coefficients is (are) correct? Investors who tend to be risk averse should have portfolio made up mostly of high-beta coefficient securities Beta coefficients of particular securities change over time. Beta coefficients are constructed based on past data. (I) only (I) and (III) only (I) and (II) only (II) and (III) only
4	List three advantages of asset allocation Smooths out the ups and downs of the market Shows that is pays to have your eggs in one baseket Allows for diversification Helps to mitigate downside risk (I), (II), (III) (I), (III), (IV) (II), (III), (IV) (I), (II), (IV)
5	Which of the following is not likely to be found in the portfolio of a typical money market mutual fund? Collateralized mortgage obligations (CMOs) U.S. Treasury bills Negotiable certificates of deposit Commercial paper
6	According to Harry Markowitz, the only free lunch in finance is: When assets move in harmony, then a diversified portfolio will have less risk. A diversified portfolio cannot deliver more than the sum of its parts. Perfectly correlated individuals assets provide this free lunch. Diversification can deliver benefits over time at no additional cost .
7	Which of the following statements concerning the standard deviation of a stocks rate of return is (are) correct? The standard deviation of a stocks rate of return reflects both the systematic and unsystematic risks associated with the stock. Approximately 68% of the rates of return on the stock will fall within plus or minus one standard deviation of the average rate of return (1) only (2) only Both (1) and (2) Neither (1) nor (2)
8	Once a strategic asset allocation is in place, an investor can make tactical adjustments to take advantage of market opportunities or to avoid risks. Which of the following is not an example of tactical shifts: Time the market in the short-term Overweigh certain asset classes Underweight certain asset classes Buy or sell due to tax considerations ___________________________________________________________ Questions #9 and #10 are based on the following facts: Assume a four-stock portfolio of stocks with following characterisitcs: Stock Percentage of Total Beta Rate of Return K 20% 0.9 -3.6% L 25% 1.2 7.0% M 30% 1.4 9.0% N 25% 1.5 -2.2%
9	Which of the following is the weighted average beta for the above portfolio? 1.275 1.750 1.800 2.250
10	What is the standard deviation of the above portfolio? 3.11 6.37 6.92 Answer cannot be determined from the information given
11	According to Schwab, a goal driven modernized asset allocation model for individual investors includes the following: Absolute return Inflation hedge Achievement of a specific target Risk reduction I, II, III I, III, IV I, II, IV II, III, IV
12	According to Schwab, in reponse to changing economic conditions, asset allocation has evolved from the typical stocks, bonds and cash blends popular during the 1990s. Modern asset allocation now encompasses non-traditional asset classes, such as commodities. True False