PM 1.11 01.03

Q. Compared to the efficient frontier of risky assets, the dominant capital allocation line has higher rates of return for levels of risk greater than the optimal risky portfolio because of the investor’s ability to:

• A. lend at the risk-free rate.
• B. borrow at the risk-free rate.
• C. purchase the risk-free asset.

None

• A. 5.4%.
• B. 5.5%.
• C. 5.6%.

None

• A. Asset 1 and Asset 2.
• B. Asset 1 and Asset 3.
• C. Asset 2 and Asset 3.

Q. Which of the following forms of pooled investments is subject to the least amount of regulation?

• A. Hedge funds.
• B. Exchange traded funds.
• C. Closed-end mutual funds.

Q. With respect to an equally-weighted portfolio made up of a large number of assets, which of the following contributes the most to the volatility of the portfolio?

• A. Average variance of the individual assets.
• B. Standard deviation of the individual assets.
• C. Average covariance between all pairs of assets.

Consider a portfolio with two assets. Asset A comprises 25% of the portfolio and has a standard deviation of 17.9%. Asset B comprises 75% of the portfolio and has a standard deviation of 6.2%. If the correlation of these two investments is 0.5, the portfolio standard deviation is closest to:

• A. 6.45%.
• B. 7.90%.
• C. 9.13%.

Q. Which of the following financial products is least likely to have a capital gain distribution?

• A. Exchange traded funds.
• B. Open-end mutual funds.
• C. Closed-end mutual funds.

None

• A. 0.009
• B. 0.0175
• C. 0.0035