Use the figure for the question(s) below. Consider the following graph of the security market line: Which of the following statements regarding portfolio "B" is/are correct? 1.Portfolio "B" has a...

Use the figure for the question(s) below.
Consider the following graph of the security market line:

Which of the following statements regarding portfolio "B" is/are correct?
1. Portfolio "B" has a positive alpha.
2. Portfolio "B" is overpriced.
3. Portfolio "B" is less risky than the market portfolio.
4. Portfolio "B" should not exist if the market portfolio is efficient.
Answer

2 and 4

4 only

1, 3, and 4

1 and 4
Question 2
Use the figure for the question(s) below.
Consider the following graph of the security market line:

The market portfolio

is underpriced.

has a positive alpha.

is overpriced.

falls on the SML.
Question 3
Which of the following statements is false?

An investor's preferences will determine only how much to invest in the tangent or
efficient portfolio versus the risk-free investment.

Conservative investors will invest a small amount in the tangent or efficient portfolio,
choosing a portfolio on the line near the risk-free investment

Only aggressive investors will choose to hold the portfolio of risky assets, the tangent or
efficient portfolio.

Aggressive investors will invest more in the tangent portfolio choosing a portfolio that is
near the tangent portfolio or even beyond it by buying stocks on margin.
Question 4
Suppose that Google Stock has a beta of 1.06 and Boeing stock has a beta of 1.31. The beta on a
portfolio that consists of 30% Google stock and 70% Boeing stock is closest to:

1.06

1.14

1.19

1.24
Question 5
Use the figure for the question(s) below.
Consider the following graph of the security market line:

Portfolio "A"

has a relatively lower expected return than predicted.

has a positive alpha.

falls below the SML.

is overpriced.
Question 6
If a stock pays dividends at the end of each quarter, with realized returns of R1, R2, R3, and R4 each
quarter, then the annual realized return is calculated as:
Answer


Rannual =

Rannual = (1 + R1)(1 + R2)(1 + R3)(1 + R4)

Rannual = (1 + R1)(1 + R2)(1 + R3)(1 + R4) - 1

Rannual = R1 + R2 + R3 + R4
Question 7
Use the figure for the question(s) below.
Consider the following graph of the security market line:

Portfolio "D"

falls below the SML.

has a negative alpha.

is overpriced.

offers an expected return equal to the risk-free...