Question

A well-diversified portfolio has an expected return that is _______ the weighted average of the expected returns of the assets inside of it and a risk level that is _______ the weighted average of the risk levels of the assets inside of it.

Pick one of the choices below to fill in the blanks above in order.

Select one:

Higher Than; Higher Than

Higher Than; Equal To

Higher Than; Lower Than

Equal To; Higher Than

Equal To; Equal To

Equal To; Lower Than

Lower Than; Higher Than

Lower Than; Equal To

Lower Than; Lower Than

Answer #1

A well-diversified portfolio has an expected return that is
**E****qual To** the weighted average of
the expected returns of the assets inside of it and a risk level
that is **Lower Than** the weighted average of the
risk levels of the assets inside of it.

The expected return of a well diversified portfolio = weighted average of the expected returns of the assets in it

Example for a 2 asset portfolio:

The risk level as measured by the standard deviation that is
**Lower Than** the weighted average of the risk levels
of the assets inside of it.

1.)The higher a bond's duration, the _______________. If your
portfolio has a duration of 7 years and your target date is 7.3
years, you should _______________.
2.) The standard deviation of annual returns is 44.6% for Stock
#1 and 59.1% for Stock #2. The correlation of Stock #1's returns to
Stock #2's returns is +1. You want to create a hedged, net-long
portfolio. Which of the choices below will accomplish that
goal?
3.) A well-diversified portfolio has an expected return...

3. Expected return of an equally weighted portfolio is simply
the ___________ of the returns of the assets in the portfolio
Select one:
a. Geometric mean
b. Arithmetic mean
c. Sum of squared returns
d. Standard deviation

You are given the opportunity to invest in a well-diversified
portfolio with expected return of 12% and beta of 1.5. The
risk-free rate is 2% and the market risk premium is 8%. Should you
invest?

A well-diversified portfolio P has an expected return of 5% and
a beta of 1.3. The risk-free rate is 2.3% and the expected return
on the S&P 500 is 8%.
a) What is the portfolio's expected alpha? Enter your answer as
a decimal.
b) What should you do? Buy the security or Short-sell the
security? Why?

You
are thinking of adding one of two investments to an already
well-diversified portfolio.
Security A Security B
Expected return=12% Expected return= 12% Standard deviation of
returns 20.9%/ Standard deviation of returns = 10.1%
Beta = 0.8 Beta = 2.1
If you are a risk-averse investor, then:

Stock X has a 9.0% expected return, a beta coefficient of 0.7,
and a 35% standard deviation of expected returns. Stock Y has a
13.0% expected return, a beta coefficient of 1.3, and a 25%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Do not round
intermediate calculations. Round your answers to two decimal
places.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Assume that you hold a well-diversified portfolio that has an
expected return of 11.0% and a beta of 1.20. You are in the process
of buying 1,000 shares of Alpha Corp at $10 a share and adding it
to your portfolio. Alpha has an expected return of 21.5% and a beta
of 1.70. The total value of your current portfolio is $90,000. What
will the expected return and beta on the portfolio be after the
purchase of the Alpha stock?...

Stock X has a 9.5% expected return, a beta coefficient of 0.8,
and a 30% standard deviation of expected returns. Stock Y has a
12.0% expected return, a beta coefficient of 1.1, and a 25.0%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Round your
answers to two decimal places. Do not round intermediate
calculations.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

Which of the following are definitely true regarding portfolio
theory based on risk and return?
a. If an investor has a well-diversified portfolio, the
portfolio would have a β of 0
d. If an investor has a well-diversified portfolio, the portfolio
would have a β of 1
c. If Stock A has a higher expected return than Stock B, a rational
investor would choose to invest in Stock A
d. A well-diversified portfolio’s level of risk cannot be further
reduced...

Stock X has a 10.5% expected return, a beta coefficient of 1.0,
and a 35% standard deviation of expected returns. Stock Y has a
12.0% expected return, a beta coefficient of 1.1, and a 30.0%
standard deviation. The risk-free rate is 6%, and the market risk
premium is 5%.
Calculate each stock's coefficient of variation. Round your
answers to two decimal places. Do not round intermediate
calculations.
CVx =
CVy =
Which stock is riskier for a diversified investor?
For...

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