Which ones of the following statements about portfolio beta are correct? O 1. If portfolio beta is between 0 and 1, then the portfolio expected return is between risk-free rate and the market expected return. O 2. If the return of an asset has zero correlation with the market portfolio returns, the beta of this asset must be zero. O 3. A portfolio that has the same portfolio weights as the market portfolio should have a beta of 1. 04. Diversification is not a way to reduce portfolio beta. O 5. If two portfolios have the same portfolio weights, but different dollar values, their betas are the same.

Which ones of the following statements about portfolio beta are correct? O 1. If portfolio beta is between 0 and 1, then the portfolio expected return is between risk-free rate and the market expected return. O 2. If the return of an asset has zero correlation with the market portfolio returns, the beta of this asset must be zero. O 3. A portfolio that has the same portfolio weights as the market portfolio should have a beta of 1. 04. Diversification is not a way to reduce portfolio beta. O 5. If two portfolios have the same portfolio weights, but different dollar values, their betas are the same.

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

See similar textbooks

Similar questions

If the market portfolio has a required return of 0.12 and a standard deviation of 0.40, and the risk-free rate is 0.04, what is the slope of the security market line?
(Singular) Suppose there are two stocks that are uncorrelated. Each of these has variance of 1, and there are expected returns are 7₁ and 72, respectively. The risk-free rate is rf. Find the portfolio of weights w₁ and w2 for the Markowitz (market) portfolio. Show that for some value of rf there is no Markowitz portfolio.
Calculate the expected return from the following security using the CAPM Capital Asset Pricing Model: Standard Deviation of Security = 0.18 Standard Deviation of Market Portfolio = 0.10 Expected Return on Market Portfolio = 0.09 Correlation between possible Returns for the Security and the Market Portfolio = 0.70. Expected Risk Free Rate = 0.03
Consider the following portfolio choice problem. The investor has initial wealth w andutility u(x) = (x^n) /n. There is a safe asset (such as a US government bond) that has netreal return of zero. There is also a risky asset with a random net return that has onlytwo possible returns, R1 with probability 1 − q and R0 with probability q. We assumeR1 < 0, R0 > 0. Let A be the amount invested in the risky asset, so that w − A isinvested in the safe asset.i) What are risk preferences of this investor, are they risk-averse, riskneutral or risk-loving?ii) Find A as a function of w.
Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve? A. E(r) = 0.15; Standard deviation = 0.20 B. E(r) = 0.20; Standard deviation = 0.15 C. E(r) = 0.10; Standard deviation = 0.10 D. E(r) = 0.10; Standard deviation = 0.20 E. E(r) = 0.15; Standard deviation = 0.10
a) First, ignore the fact that r,rf depends on whether you are long or short the risk-free asset. Suppose rrf = 2%. Solve for the tangency portfolio. b) asset. Suppose rrf = 9%. Solve for the tangency portfolio. Again, ignore the fact that rrf depends on whether you are long or short the risk-free Now, for parts c) to f) of the questions, let's take into account that rrf depends on whether c) you are long or short the risk-free asset. Draw out the shape of the efficient frontier. (Hint: think about what (E, o) pairs you can achieve via investing positive amounts in the risk-free asset, and investing negative amounts in the risk-free asset (borrowing). You will use your answers to parts A. and B.). The drawing does not need to be to scale, but needs to illustrate correctly the shape of the efficient frontier. d) deviation of 10%. Solve for the optimal portfolio for the client (that is, the weights wA, WB,Wrf which maximize the client's expected return, conditional on the standard…
A beta of 1.0 represents an asset that O is less responsive than the market portfolio has the same response as the market portfolio O is unaffected by market movement O is more responsive than the market portfolio
4. Which of the following statements about the Sharpe ratio is false? (a) The Sharpe ratio is equal to the excess return of a portfolio over the market return divided by the total risk of the portfolio. (b) The Sharpe ratio can be used to evaluate absolute performance of undiversified portfolios. (c) The Sharpe ratio considers both the systematic and unsystematic risks of a portfolio. (d) The Sharpe ratio is derived from the capital market line.
For a market timer, the ________ will be higher when the market risk premium is higher Select one: a. portfolio’s idiosyncratic risk b. portfolio’s standard deviation c. portfolio’s beta d. security selection component of the portfolio e. portfolio’s alpha
According to modern portfolio theory, the idea that investors with different indifference curves will hold the same portfolio of risky securities is a result of O a. the separation theorem O b. covariance O c. the normal distribution assumption O d. diminishing marginal utility of income
Can the standard deviation of a portfolio be zero? Explain your answer.
At a minimum, which of the following would you need to know to estimate the amount of additional reward you will receive for purchasing a risky asset instead of a risk-free asset? 1. I. Asset's standard deviation 2. II. Asset's beta 3. III. Risk-free rate of return 4. IV. Market risk premium I, III, and IV only I, II, III, and IV I and III only II and IV only III and IV only ооо O

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS