Question

Bill beat the market on a risk adjusted basis

true or false

The variance of returns on a portfolio of risky assets is a weighted sum of the variance of the individual assets. TRUE FALSE.

Answer #1

**Answer:**

**False**

**Explanation:**

The statement that the variance of returns on a portfolio of risky assets is a weighted sum of the variance of the individual assets is false. In fact overall portfolio variance of risky assets is smaller than a simple weighted sum of the variance of the individual assets in the portfolio. The portfolio variance is weighted combination of its individual variances adjusted by its covariance.

For example the portfolio variance of two risky assets is given by following formula:

Assume that last year, T-bills and the market yielded 2%
and 10% respectively. Bill earned 10% on a portfolio with a beta of
0.9, while Mary earned 12% on a portfolio with a beta of 1.5. Their
respective Treynor scores were.
8.89 and 6.67
9 and 10.5
9.1 and 12
8.7 and 12.1.
Mary beat the market on a risk adjusted
basis.
TRUE
FALSE.
Bill beat the market on a risk adjusted
basis.
TRUE
FALSE.

18. Which of the following statements about the minimum variance
portfolio of all risky securities are valid? (Assume short sales
are allowed.)
i. Its variance must be lower than those of all other securities
or portfolios.
ii. Its expected return can be lower than the risk-free
rate.
iii. It may be the optimal risky portfolio.
iv. It must include all individual securities.
19. Assume that expected returns and standard deviations for all
securities (including the risk-free rate for borrowing and...

1. True/ False ?
a) Diversification reduces the market risk of a portfolio.
b) For a given level of expected returns, the primary goal of
investors is to minimize the beta of their portfolio.
c) In an MM world, WACC equals the return on assets.
d) After-tax WACC should be used as a discount rate for a firm’s
average project.

1.Which of the follwing statements about portfolio risk are true.
a) the riskiness of a portfolio is the weighted average of the
imdividual assets' standard deviations
b) two stocks can be individually quite risky but when they
are combined to form a portfolio it is possible that they are not
risky at all
c) diversification only wants to reduce risk if you portfolios
and fix it perfectly positively related stocks (securities)
d) all of the above
2. which of the...

which of the following statements is true about diversification
and risk?
With higher number of assets, the company specific risk
approaches zero and total
portfolio risk falls to the systematic risk (market risk)
With higher number of assets, the company specific risk
approaches the systematic risk
(market risk)
With higher number of assets, the total portfolio risk increases
to the sum of the
individual company specific risk and the systematic risk (market
risk)
With higher number of assets, total portfolio...

True or False
Higher risk equals higher returns only holds true for systematic
risk,but not necessarily for unsystematic risk.
Why?

In a universe with four risky assets the market portfolio is
comprised of an equally weighted combination of those assets. This
market portfolio has an expected return of 8% and a variance of
12%. Assume, that in addition a risk-free asset with return of 1%
exists. What percentage of each risky asset will an investor with
Utility function U(r) = E(r) – 0.4 var(r) hold in his
portfolio?
18%
20%
27%
30%

8. (5) True or false or Uncertain. Explain briefly.
By the CAPM, stocks with the same beta have the same
variance
If CAPM holds, α should be zero for all assets.
Optimal portfolios should exclude individual assets whose
expected return and risk (measured by its standard deviation) are
dominated by other available assets.
A stock with high standard deviation may contribute less to
portfolio risk than a stock with lower standard deviation.
Diversification reduces the expected return on the portfolio...

Which of the following statements is (are) false? Question
options:
a. All mean-variance efficient portfolios are combinations of
the market portfolio and the risk-free asset
b. If two mean-variance efficient portfolios are combined, the
result is a mean-variance efficient portfolio
c. If the market portfolio is the tangency portfolio, then the
relationship between risk and return is best described as
parabolic
d. All of the above are true statements

Jane believes that she can "beat the market" on a consistent
basis by basing her trades on the pattern of prices that now exist.
If true, what would Jane's trading pattern violate?

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