16. Consider an investment opportunity set formed with two securities that are perfectly negatively
correlated. The global minimum variance portfolio has a standard deviation that is always
A. greater than zero.
B. equal to zero.
C. equal to the sum of the securities' standard deviations.
D. equal to -1.
17. Which of the following statement(s) is(are) true regarding the variance of a portfolio of two risky
securities?
I) The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance.
II) There is a linear relationship between the securities' coefficient of correlation and the portfolio variance.
III) The degree to which the portfolio variance is reduced depends on the degree of correlation between securities.
A. I only
B. II only
C. III only
D. I and II
E. I and III
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McGraw-Hill Education.
18. Which of the following statement(s) is(are) false regarding the variance of a portfolio of two risky
securities?
I) The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance.
II) There is a linear relationship between the securities' coefficient of correlation and the portfolio variance.
III) The degree to which the portfolio variance is reduced depends on the degree of correlation between securities.
A. I only
B. II only
C. III only
D. I and II
E. I and III
19. Efficient portfolios of N risky securities are portfolios that
A. are formed with the securities that have the highest rates of return regardless of their standard deviations.
B. have the highest rates of return for a given level of risk.
C. are selected from those securities with the lowest standard deviations regardless of their returns.
D. have the highest risk and rates of return and the highest standard deviations.
E. have the lowest standard deviations and the lowest rates of return.
7-7
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McGraw-Hill Education.
20. Which of the following statement(s) is(are) true regarding the selection of a portfolio from those
that lie on the capital allocation line?
I) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors.
II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors.
III) Investors choose the portfolio that maximizes their expected utility.
A. I only
B. II only
C. III only
D. I and III
E. II and III
21. Which of the following statement(s) is(are) false regarding the selection of a portfolio from those
that lie on the capital allocation line?
I) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors.
II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors.
III) Investors choose the portfolio that maximizes their expected utility.
A. I only
B. II only
C. III only
D. I and II
E. I and III
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McGraw-Hill Education.
22. Consider the following probability distribution for stocks A and B:
The expected rates of return of stocks A and B are _____ and _____, respectively.
A. 13.2%; 9%
B. 14%; 10%
C. 13.2%; 7.7%
D. 7.7%; 13.2%
23. Consider the following probability distribution for stocks A and B:
The standard deviations of stocks A and B are _____ and _____, respectively.
A. 1.5%; 1.9%
B. 2.5%; 1.1%
C. 3.2%; 2.0%
D. 1.5%; 1.1%
7-9
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McGraw-Hill Education.
24. Consider the following probability distribution for stocks A and B:
The variances of stocks A and B are _____ and _____, respectively.
A. 1.5%; 1.9%
B. 2.2%; 1.2%
C. 3.2%; 2.0%
D. 1.5%; 1.1%
25. Consider the following probability distribution for stocks A and B:
The coefficient of correlation between A and B is
A. 0.46.
B. 0.60.
C. 0.58.
D. 1.20.
7-10
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McGraw-Hill Education.
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