45) Historically, the best asset for the long-term investor wanting to fend off the threats of
inflation and taxes while making his money grow has been ________.
A) stocks
B) bonds
C) money market funds
D) Treasury bills
46) The formula is used to calculate the ________.
A) Sharpe ratio
B) Treynor measure
C) coefficient of variation
D) real rate of return
47) A portfolio with a 25% standard deviation generated a return of 15% last year when T-bills
were paying 4.5%. This portfolio had a Sharpe ratio of ________.
A) .22
B) .60
C) .42
D) .25
48) Consider a Treasury bill with a rate of return of 5% and the following risky securities:
Security A: E(r) = .15; variance = .0400
Security B: E(r) = .10; variance = .0225
Security C: E(r) = .12; variance = .1000
Security D: E(r) = .13; variance = .0625
The investor must develop a complete portfolio by combining the risk-free asset with one of the
securities mentioned above. The security the investor should choose as part of her complete
portfolio to achieve the best CAL would be ________.
A) security A
B) security B
C) security C
D) security D
49) You purchased a share of stock for $29. One year later you received $2.25 as dividend and
sold the share for $28. Your holding-period return was ________.
A) -3.57%
B) -3.45%
C) 4.31%
D) 8.03%
50) Security A has a higher standard deviation of returns than security B. We would expect that:
I. Security A would have a risk premium equal to security B.
II. The likely range of returns for security A in any given year would be higher than the likely
range of returns for security B.
III. The Sharpe ratio of A will be higher than the Sharpe ratio of B.
A) I only
B) II only
C) II and III only
D) I, II, and III
51) The holding-period return on a stock was 25%. Its ending price was $18, and its beginning
price was $16. Its cash dividend must have been ________.
A) $.25
B) $1
C) $2
D) $4
52) An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15%
and a variance of 5%, and she puts 30% in a Treasury bill that pays 5%. Her portfolio’s expected
rate of return and standard deviation are ________ and ________ respectively.
A) 10%; 6.7%
B) 12%; 22.4%
C) 12%; 15.7%
D) 10%; 35%
53) The holding-period return on a stock was 32%. Its beginning price was $25, and its cash
dividend was $1.50. Its ending price must have been ________.
A) $28.50
B) $33.20
C) $31.50
D) $29.75
54) Consider the following two investment alternatives: First, a risky portfolio that pays a 15%
rate of return with a probability of 40% or a 5% rate of return with a probability of 60%. Second,
a Treasury bill that pays 6%. The risk premium on the risky investment is ________.
A) 1%
B) 3%
C) 6%
D) 9%
55) Consider the following two investment alternatives: First, a risky portfolio that pays a 20%
rate of return with a probability of 60% or a 5% rate of return with a probability of 40%. Second,
a Treasury bill that pays 6%. If you invest $50,000 in the risky portfolio, your expected profit
after one year would be ________.
A) $3,000
B) $7,000
C) $7,500
D) $10,000
56) You invest $10,000 in a complete portfolio. The complete portfolio is composed of a risky
asset with an expected rate of return of 15% and a standard deviation of 21% and a Treasury bill
with a rate of return of 5%. How much money should be invested in the risky asset to form a
portfolio with an expected return of 11%?
A) $6,000
B) $4,000
C) $7,000
D) $3,000
57) You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky
asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill
with a rate of return of 6%. ________ of your complete portfolio should be invested in the risky
portfolio if you want your complete portfolio to have a standard deviation of 9%.
A) 100%
B) 90%
C) 45%
D) 10%
58) You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky
asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill
with a rate of return of 6%. A portfolio that has an expected value in 1 year of $1,100 could be
formed if you ________.
A) place 40% of your money in the risky portfolio and the rest in the risk-free asset
B) place 55% of your money in the risky portfolio and the rest in the risk-free asset
C) place 60% of your money in the risky portfolio and the rest in the risk-free asset
D) place 75% of your money in the risky portfolio and the rest in the risk-free asset
59) You invest $1,000 in a complete portfolio. The complete portfolio is composed of a risky
asset with an expected rate of return of 16% and a standard deviation of 20% and a Treasury bill
with a rate of return of 6%. The slope of the capital allocation line formed with the risky asset
and the risk-free asset is approximately ________.
A) 1.040
B) .80
C) .50
D) .25
60) You have $500,000 available to invest. The risk-free rate, as well as your borrowing rate, is
8%. The return on the risky portfolio is 16%. If you wish to earn a 22% return, you should
________.
A) invest $125,000 in the risk-free asset
B) invest $375,000 in the risk-free asset
C) borrow $125,000
D) borrow $375,000
61) The return on the risky portfolio is 15%. The risk-free rate, as well as the investor’s
borrowing rate, is 10%. The standard deviation of return on the risky portfolio is 20%. If the
standard deviation on the complete portfolio is 25%, the expected return on the complete
portfolio is ________.
A) 6%
B) 8.75 %
C) 10%
D) 16.25%
62) You are considering investing $1,000 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky
securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has
an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a
complete portfolio with an expected rate of return of 11%, you should invest ________ of your
complete portfolio in Treasury bills.
A) 19%
B) 25%
C) 36%
D) 50%
63) You are considering investing $1,000 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky
securities, X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has
an expected rate of return of 14%, and Y has an expected rate of return of 10%. To form a
complete portfolio with an expected rate of return of 8%, you should invest approximately
________ in the risky portfolio. This will mean you will also invest approximately ________
and ________ of your complete portfolio in security X and Y, respectively.
A) 0%; 60%; 40%
B) 25%; 45%; 30%
C) 40%; 24%; 16%
D) 50%; 30%; 20%
64) You are considering investing $1,000 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky
securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has
an expected rate of return of 14%, and Y has an expected rate of return of 10%. If you decide to
hold 25% of your complete portfolio in the risky portfolio and 75% in the Treasury bills, then the
dollar values of your positions in X and Y, respectively, would be ________ and ________.
A) $300; $450
B) $150; $100
C) $100; $150
D) $450; $300
65) You are considering investing $1,000 in a complete portfolio. The complete portfolio is
composed of Treasury bills that pay 5% and a risky portfolio, P, constructed with two risky
securities, X and Y. The optimal weights of X and Y in P are 60% and 40%, respectively. X has
an expected rate of return of 14%, and Y has an expected rate of return of 10%. The dollar values
of your positions in X, Y, and Treasury bills would be ________, ________, and ________,
respectively, if you decide to hold a complete portfolio that has an expected return of 8%.
A) $162; $595; $243
B) $243; $162; $595
C) $595; $162; $243
D) $595; $243; $162
66) You have the following rates of return for a risky portfolio for several recent years:
2013 35.23%
2014 18.67%
2015 −9.87%
2016 23.45%
If you invested $1,000 at the beginning of 2013, your investment at the end of 2016 would be
worth ________.
A) $2,176.60
B) $1,785.56
C) $1,645.53
D) $1,247.87
67) You have the following rates of return for a risky portfolio for several recent years:
2013 35.23%
2014 18.67%
2015 −9.87%
2016 23.45%
The annualized (geometric) average return on this investment is ________.
A) 16.15%
B) 16.87%
C) 21.32%
D) 15.60%