According to the Markowitz Model, the optimal portfolio for an investor is at the point of tangency between the efficient frontier and the: a. Highest possible utility curve b. Lowest possible utility curve c. The horizontal utility curve d. The steepest utility curve e. The flattest utility curve f. None of the above answers is correct 8. Between 2000 and 2010, the standard deviation of the returns for the NIKKEI and the S+P500 Indexes were 0.18 and 0.16, respectively, and the covariance between the indexes was 0.003. What was the correlation coefficient between the indexes? Round to 4 decimal points. Answer: 0.1042 9. When identifying undervalued and overvalued assets, which of the statements below is false? a. An asset is properly valued if its estimated rate of return is equal to its required rate of return. b. An asset is considered overvalued if its estimated rate of return is below its required rate of return. c. An asset is considered undervalued if its estimated rate of return is above its required rate of return. d. An asset is considered overvalued if its required rate of return is below its estimated rate of return. All of the above answers are false. e. f. None of the above answers is false.
According to the Markowitz Model, the optimal portfolio for an investor is at the point of tangency between the efficient frontier and the: a. Highest possible utility curve b. Lowest possible utility curve c. The horizontal utility curve d. The steepest utility curve e. The flattest utility curve f. None of the above answers is correct 8. Between 2000 and 2010, the standard deviation of the returns for the NIKKEI and the S+P500 Indexes were 0.18 and 0.16, respectively, and the covariance between the indexes was 0.003. What was the correlation coefficient between the indexes? Round to 4 decimal points. Answer: 0.1042 9. When identifying undervalued and overvalued assets, which of the statements below is false? a. An asset is properly valued if its estimated rate of return is equal to its required rate of return. b. An asset is considered overvalued if its estimated rate of return is below its required rate of return. c. An asset is considered undervalued if its estimated rate of return is above its required rate of return. d. An asset is considered overvalued if its required rate of return is below its estimated rate of return. All of the above answers are false. e. f. None of the above answers is false.
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![7. According to the Markowitz Model, the optimal portfolio for an investor is at the point of tangency between
the efficient frontier and the:
a. Highest possible utility curve
b. Lowest possible utility curve
C. The horizontal utility curve
d. The steepest utility curve
The flattest utility curve
e.
f. None of the above answers is correct
8. Between 2000 and 2010, the standard deviation of the returns for the NIKKEI and the S+P500 Indexes were
0.18 and 0.16, respectively, and the covariance between the indexes was 0.003. What was the correlation
coefficient between the indexes? Round to 4 decimal points.
Answer:
0.1042
9. When identifying undervalued and overvalued assets, which of the statements below is false?
a. An asset is properly valued if its estimated rate of return is equal to its required rate of return.
b. An asset is considered overvalued if its estimated rate of return is below its required rate of return.
C. An asset is considered undervalued if its estimated rate of return is above its required rate of return.
d. An asset is considered overvalued if its required rate of return is below its estimated rate of return.
e. All of the above answers are false.
f.
None of the above answers is false.
Questions 10 and 11 use the Data in the table below.
E[R]
Std Dev
Weight
Covariance of Cool & Breeze
Covariance of Cool & Anger
Covariance of Breeze & Anger
Answer: 9.90%
Cool Corp.
8.50%
7.00%
30.00%
0.0040
0.0075
0.0015
Answer: 9.90%
Breeze Inc.
9.00%
7.50%
35.00%
Anger Ltd.
12.00%
9.00%
35.00%
10. Given the Portfolio data in the table above, what is the Expected Return of the Portfolio? Answer as a
percentage and round to 1 basis point or 2 decimal places.
Page 2 of 9
11. Given the Portfolio data in the table above, what is the Standard Deviation of the Expected Return of the
Portfolio? Answer as a percentage and round to 1 basis point or 2 decimal places.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3daea104-4b11-414e-ab05-caf231aaf22d%2Fbce5b696-ab19-43f9-917d-3634d9190b68%2Fb02ns8f_processed.png&w=3840&q=75)
Transcribed Image Text:7. According to the Markowitz Model, the optimal portfolio for an investor is at the point of tangency between
the efficient frontier and the:
a. Highest possible utility curve
b. Lowest possible utility curve
C. The horizontal utility curve
d. The steepest utility curve
The flattest utility curve
e.
f. None of the above answers is correct
8. Between 2000 and 2010, the standard deviation of the returns for the NIKKEI and the S+P500 Indexes were
0.18 and 0.16, respectively, and the covariance between the indexes was 0.003. What was the correlation
coefficient between the indexes? Round to 4 decimal points.
Answer:
0.1042
9. When identifying undervalued and overvalued assets, which of the statements below is false?
a. An asset is properly valued if its estimated rate of return is equal to its required rate of return.
b. An asset is considered overvalued if its estimated rate of return is below its required rate of return.
C. An asset is considered undervalued if its estimated rate of return is above its required rate of return.
d. An asset is considered overvalued if its required rate of return is below its estimated rate of return.
e. All of the above answers are false.
f.
None of the above answers is false.
Questions 10 and 11 use the Data in the table below.
E[R]
Std Dev
Weight
Covariance of Cool & Breeze
Covariance of Cool & Anger
Covariance of Breeze & Anger
Answer: 9.90%
Cool Corp.
8.50%
7.00%
30.00%
0.0040
0.0075
0.0015
Answer: 9.90%
Breeze Inc.
9.00%
7.50%
35.00%
Anger Ltd.
12.00%
9.00%
35.00%
10. Given the Portfolio data in the table above, what is the Expected Return of the Portfolio? Answer as a
percentage and round to 1 basis point or 2 decimal places.
Page 2 of 9
11. Given the Portfolio data in the table above, what is the Standard Deviation of the Expected Return of the
Portfolio? Answer as a percentage and round to 1 basis point or 2 decimal places.
![1. The Markowitz Model is based on several assumptions regarding investor behaviour. Which of the following
is NOT an assumption?
a.
Investors consider each investment alternative as being represented by a probability distribution of expected
returns over some holding period.
b. Investors maximize one-period expected utility.
c. Investors estimate the risk of the portfolios on the basis of the variability of expected returns.
d.
Investors base decisions solely on expected return and risk.
e. None of the above answers [all are assumptions of the Markowitz Model].
2. Markowitz model is based on the assumption that any asset or portfolio of assets can be described by
parameters.
a. 1
b. 2
c. 2.5
d. 3
e. 4
f. None of the above answers is correct.
3. In a Markowitz portfolio with 2 stocks, if the correlation coefficient between the stocks were to decrease over
time with everything else remaining constant, the portfolio's risk would:
a. Decrease
b. Remain Constant
c. Increase
d. Fluctuate positively and negatively
e. Be a negative value
f. There is not enough information to answer the question
4. Consider a portfolio consisting of 2 assets with a fixed correlation coefficient in a Markowitz environment. If
the weight of the 2 assets is varied, the expected portfolio return would be and the expected portfolio
standard deviation would be
a. Nonlinear, elliptical
b. Nonlinear, circular
c. Linear, elliptical
d.
Linear, circular
e. Circular, elliptical
f. All of the answers could be correct depending on the weights of the 2 stocks
g. None of the above answers is correct
5. If an equal amount of risk is added to a portfolio moving along the Markowitz Efficient Frontier to the
northeast, the return will:
a. Decrease at an increasing rate
b.
Decrease at a decreasing rate
c.
Increase at an increasing rate
d. Increase at a decreasing rate
e. Remain constant
f. None of the above answers is correct
6. The Markowitz Model considers a portfolio to be efficient if:
a. No other portfolio offers a higher expected return with the same risk
b. No other portfolio offers a lower risk with the same expected return
c. There is no portfolio with a higher return
d. Answers a. and b. are both correct
Page 1 of 9
e. All of the above answers are correct
f. None of the above answers is correct](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F3daea104-4b11-414e-ab05-caf231aaf22d%2Fbce5b696-ab19-43f9-917d-3634d9190b68%2Ffca0m1_processed.png&w=3840&q=75)
Transcribed Image Text:1. The Markowitz Model is based on several assumptions regarding investor behaviour. Which of the following
is NOT an assumption?
a.
Investors consider each investment alternative as being represented by a probability distribution of expected
returns over some holding period.
b. Investors maximize one-period expected utility.
c. Investors estimate the risk of the portfolios on the basis of the variability of expected returns.
d.
Investors base decisions solely on expected return and risk.
e. None of the above answers [all are assumptions of the Markowitz Model].
2. Markowitz model is based on the assumption that any asset or portfolio of assets can be described by
parameters.
a. 1
b. 2
c. 2.5
d. 3
e. 4
f. None of the above answers is correct.
3. In a Markowitz portfolio with 2 stocks, if the correlation coefficient between the stocks were to decrease over
time with everything else remaining constant, the portfolio's risk would:
a. Decrease
b. Remain Constant
c. Increase
d. Fluctuate positively and negatively
e. Be a negative value
f. There is not enough information to answer the question
4. Consider a portfolio consisting of 2 assets with a fixed correlation coefficient in a Markowitz environment. If
the weight of the 2 assets is varied, the expected portfolio return would be and the expected portfolio
standard deviation would be
a. Nonlinear, elliptical
b. Nonlinear, circular
c. Linear, elliptical
d.
Linear, circular
e. Circular, elliptical
f. All of the answers could be correct depending on the weights of the 2 stocks
g. None of the above answers is correct
5. If an equal amount of risk is added to a portfolio moving along the Markowitz Efficient Frontier to the
northeast, the return will:
a. Decrease at an increasing rate
b.
Decrease at a decreasing rate
c.
Increase at an increasing rate
d. Increase at a decreasing rate
e. Remain constant
f. None of the above answers is correct
6. The Markowitz Model considers a portfolio to be efficient if:
a. No other portfolio offers a higher expected return with the same risk
b. No other portfolio offers a lower risk with the same expected return
c. There is no portfolio with a higher return
d. Answers a. and b. are both correct
Page 1 of 9
e. All of the above answers are correct
f. None of the above answers is correct
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