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1
Portfolio weights are based on the face value of bond securities.
A)True
B)False
2
To eliminate the majority of diversifiable risk requires a portfolio to contain at least 40 diverse securities.
A)True
B)False
3
There is some combination of stock and bonds which produces a lower risk portfolio than that which is obtainable from an all-bond portfolio.
A)True
B)False
4
Considering the state of the economy:
A)has no significant effect on a stock's expected rate of return.
B)automatically lowers the expected return on a stock.
C)complicates the computation but does not change the expected return on a stock.
D)applies only to individual security returns but not to portfolio returns.
E)improves the estimate of a stock's expected rate of return.
5
Which one of the following statements is correct?
A)One hundred stocks are required to eliminate the bulk of the diversifiable risk from a portfolio.
B)A portfolio of one security is likely to have a standard deviation of 70 percent or more.
C)Standard deviation measures diversifiable risk.
D)The number of stocks needed to highly diversify a portfolio is constant over time.
E)A fully diversified portfolio still contains nondiversifiable risk.
6
You own a portfolio consisting of two stocks. The stocks have a zero correlation. If stock A increases its return by 10 percent over the course of one year, the return on Stock B will:
A)decrease by 10 percent.
B)decrease by up to 10 percent.
C)change in an unpredictable manner.
D)remain constant.
E)increase by 10 percent.
7
Tracy just inherited a portfolio valued at $50,000 from her grandmother. The portfolio consists of two stocks. The first stock is worth $28,000 and has a standard deviation of 5.4 percent. The second stock has a standard deviation of 11.8 percent. What is the portfolio standard deviation if the correlation of these two stocks is .62?
A)6.28 percent
B)6.39 percent
C)6.81 percent
D)7.45 percent
E)7.54 percent
8
All efficient portfolios which consist of the same two assets plot at or above the:
A)maximum obtainable rate of return.
B)maximum variance portfolio.
C)minimum variance portfolio.
D)average portfolio rate of return.
E)average portfolio standard deviation.
9
You are analyzing the possible portfolios which can be created from combining bonds and stocks. If you select the one portfolio that has the lowest standard deviation, you have identified the _____ portfolio.
A)one and only efficient
B)minimum return
C)maximum return
D)minimum variance
E)inefficient
10
Adding foreign securities to a portfolio containing domestic stocks and bonds tends to shift the Markowitz efficient frontier:
A)downward and to the left.
B)downward and to the right.
C)upward and to the left.
D)upward and to the right.
E)upward only.





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