1. Stock A has an expected return of 5%, and a standard deviation of returns of 10%. Stock b has an expected return of 15% and a standard deviation of returns of 20%. The correlation between the two stocks returns in 0.90. The standard deviation of an equally-weighted portfolio comprised of the two stocks will be:

15%	B) LESS THAN 15%
MORE THAN 15%	None of the above.

2. If one were to use calculus and algebra to find the efficient frontier among 100 stocks one would need to calculate __________ covariances and _______________ variances.

5,000; 100	B) 4,950; 100
10,000; 100	None of the above.

3. Which of the following is the formula for the variance of a two-security portfolio:

1. i=12j=12wiwji,j

2. i=12wi2i2 +i=12j=12wiwji,j for all j i

3. w1212+w2222+2w1w21,2

4. All of the above are correct.

4. In portfolio optimization, the variable that the portfolio managers has a choice about are:

The expected returns of the stocks	B) the variances of the stock returns
The covariances among the returns	None of the above.

5. Stock A has an expected return of 5%, and a standard deviation of returns of 10%. Stock b has an expected return of 15% and a standard deviation of returns of 20%. The correlation between the two stocks returns in 0.90. The expected return of an equally-weighted portfolio comprised of the two stocks will be:

7.5%	B) LESS THAN 7.5%
MORE THAN 7.5%	None of the above.