January 16, 2017

Homework Help: Basic Finance Risk vs Return

Posted by Anonymous on Sunday, January 31, 2010 at 9:30pm.

Please check and correct my answers.

Investors want ____ returns and ___ risk.

Answer: high return, low risk

Which statement about the efficient set, minimum-variance set and feasible is incorrect?
a) the minimum variance is the set of all portfolios with the lowest variance for a given expected return
b) the efficient set is smaller than the feasible set
c) the efficient set is a subset of a feasible set
d) one’s opinions determine the efficient set
e) one’s preference determine the feasible set

Answer: d

Stock X with $20k invested returned 20%. Stock B with $60k invested returned 8%. Stock Z with $20k invested returned -10%. What was the overall portfolio return?

Answer: 15.8%

Ex ante is _____ (before or after the fact) and ex post is _____ (based on the opinions of forecasters, history, observation).

ex ante: before the fact
ex post: history

Which statement(s) is correct?
a) Portfolio variance will always be lower than portfolio return
b) The calculation of neither expected portfolio return no expected portfolio variance depends on the state of nature that actually occurs.

Answer: both are correct

You have 2 standard 6-sided dice. Let a equal the value of the first, b equal the value of the second and c equal the sum of the two values. What is the correlation?

Answer: no relationship, 0 correlation

When the correlation between 2 securities is 0, there is no reduction in risk through combining the securities into a portfolio. This is the only situation where forming portfolios does not provide risk reduction to an investor. True or False.

Answer: True

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