Rebalancing is essentially about taking money from the _____ asset class and moving it to the _____ asset

class.

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cold; hot bond; equity hot; cold equity; bond None of the above Your investment policy statement should be reviewed (and modified if necessary)

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when you have a major life event every three years if you know your goals have changed All of the above None of the above The investment policy statement studied in the text set as its financial goal (after expenses) to

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earn the maximum rate of return compensate workers for the rate of inflation pay all beneficiaries a high monthly benefit earn a stated long-run rate of return All of the above The writing of an investment policy statement allows you to

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really stop and think about what are your goals seriously examine your financial goals prioritize your goals All of the above None of the above Which of these is not normally in an investment policy statement?

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Asset allocation Individual security selection Goals All of the above are in the statement None of the above is in the statement The investment policy statement included in the text is from the

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University of Houston Endowment Houston Firefighters Relief and Retirement Fund Texas Teachers Retirement System Shell Employees 401(k) Plan None of the above In the text a study was reported on that indicated that (ignoring transaction costs) portfolio risk was minimized around _____ securities.

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18 60 10 0 11 1 15 0 Juan has a portfolio that has a beta of 1.21. This portfolio is

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more risky than the market as risky as the market less risky than the market Any of the above answer could be correct, depending on other factors There is insufficient information to answer To calculate the standard deviation of returns of a portfolio, you need all of these data except

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the weight of each asset the beta of each asset the standard deviation of each asset the correlation of returns between each asset You need all of these data The higher (closer to 1.00) the correlation of returns between two assets, the _____ will be the portfolio standard deviation (all other things being equal).

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larger smaller closer to neutral All of the above None of the above Had Enron investors paid attention to sops fables they would have known

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not to invest in Enron stock not to invest in any stocks to stick to bonds not to invest too heavily in a single investment None of the above If the correlation of returns increases sharply between the two assets in a two-asset portfolio, you would anticipate that the expected return of the portfolio would

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increase sharply

increase some be unaffected decrease some decrease sharply Given the following data, calculate the standard deviation of the portfolio. Assume the correlation of returns between the assets is 0.7. Asset A B Weight 0.75 0.25 Standard Deviation 0.22 0.10

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. 17 6 . 17 9 . 18 1 . 18 3 . 18 6 iven the following data, what is the expected return of this two-asset portfolio? Asset A B Return .10 .15 Weight ?? .30

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. 1 0 . 1 1 . 1 2 . 1 3 . 1 4 In order to have any degree of diversification in a portfolio, an investor must have investments that have correlations with other investments in the portfolio that are Answer less than 1.0 low and positive zero negative Any of the above will work (although one may be better than another) The optimum portfolio

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is a custom fit is the one that provides your required rate of return has the least risk possible All of the above None of the above The optimum portfolio

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is a custom fit is the one that provides your required

rate of return has the least risk possible All of the above None of the above An efficient portfolio Answer offers maximum return for a given level of risk maximizes return per unit of return offers maximum risk for a given level of return Both a and b are correct Both a and c are correct he market portfolio consists of all

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US and non-US stocks and bonds international stocks international bonds risky assets None of the above nna has set up a two-asset portfolio. She has 40% of her money in the first asset and it is expected to return 12%. The other asset is expected to return 9%. The expected return on her portfolio is

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7.8% 8.4% 9.0% 9.6% 10.2 % The text discussed the 100 minus your age rule. This rule is designed to suggest

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what percentage of your funds should be in stocks what percentage of your funds should be in bonds a strategy for setting financial goals All of the above None of the above esearch has shown that asset allocation explains _____% of the rate of return and _____% of the variation of returns for a portfolio over time.

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90; 40 40; 90 70; 50 50; 70 None of the above Marcella is about to allocate some funds in her portfolio to stocks, with the rest of the portfolio being bonds. Which of these weighting plans should produce the lowest long-run rate of return?

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0% stocks; 100% bonds 25% stocks; 75% bonds 50% stocks; 50% bonds 75% stocks; 25% bonds 100% stocks; 0% bonds Of the two approaches to portfolio construction, the one that starts with an overview of the economy and other macro variables is

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the equity valuation approach the bottom-up approach the top of the market approach All of them start that

way None of the above

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