Q1.
Two securities that are perfectly negatively correlated have standard deviations of 0.005 (Security A) and 0.015 (Security B). What would be the proportion of these two securities in a minimum variance portfolio?
Q2.
Which portion of the portfolio possibilities curve represents the efficient frontier?
Q3.
(I) In a two security portfolio, shorting of one security means that more investment is made in the other security.
(II) When securities are perfectly positively correlated, any combination of the secutities in the portfolio would lie on a line.
Q4.
If ß of a security is 1.5 and Rm for the period was 2%, then the market-dependent returns of the security during the period ought to have been around:
Q5.
Calculate the expected return for a security in a single index model, given that it’s a is 0.03, b is 1.2 and expected market return is 4%. Assume the standard deviation of the market is 0.025%.
(Hints: Taking the error term eA to be zero)
Q6.
For a security in a single index model, given that it’s a is 0.03, b is 1.2 and expected market return is 4%. Assume that standard deviation of the market is 0.025%. What would be its covariance with another security whose b is 1.75?
Q7.
In a single index model, if a of a security A is 1.5% and its ß is 2. Assume that standard deviation of the market is 2.4%. What would be the covariance of Security A with another Security B, which has b of 1.25 times?
Q8.
The Systematic risk (ß), which cannot be reduced through diversification.
Q9.
The Constant Correlation Model uses the standard deviation instead of ß.
Q10.
(I) Under the general definition, short sales generate resources that can be invested in the securities that the investor wants to go long on.
(II) Under Lintner’s definition, short sales do not generate resources.
Q11.
Under Lintner’s definition, the optimized portfolios turn out to be quite aggressive.
Q12.
(I) The shape of the portfolio possibilities curve is determined by the risk and return of the securities and the correlation between them.
(II) Shorting only extends the portfolio possibilities curve into infinity.
Q13.
The efficient frontier is a concave curve. It becomes a straight line in which situation/s:
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