PM 1.11 06.03

Q. The sum of an asset’s systematic variance and its nonsystematic variance of returns is equal to the asset’s:

• A. beta.
• B. total risk.
• C. total variance.

None

• A. low ability to take risk, but a high willingness to take risk.
• B. high ability to take risk, but a low willingness to take risk.
• C. high ability to take risk and a high willingness to take risk.

None

• A. 0.43.
• B. 0.23.
• C. 1.88.

Q. Relative to portfolios on the CML, any portfolio that plots above the CML is considered:

• A. inferior.
• B. inefficient.
• C. unachievable.

In the context of strategic asset allocation, adding asset classes with low correlation will most likely improve a portfolio’s risk–return trade-off as long as the stand-alone risk of the added asset class:

• A. does not exceed its diversification effect.
• B. equals its diversification effect.
• C. exceeds its diversification effect.

None

• A. Security 1.
• B. Security 2.
• C. Security 3.

Q. Which of the following statements most accurately defines the market portfolio in capital market theory? The market portfolio consists of all:

• A. risky assets.
• B. tradable assets.
• C. investable assets.

Q. With respect to the capital asset pricing model, which of the following values of beta for an asset is most likely to have an expected return for the asset that is less than the risk-free rate?

• A. −0.5.
• B. 0.0.
• C. 0.5.

None

• A. Portfolio D.
• B. Portfolio E.
• C. Portfolio F.

Q. In defining asset classes as part of the strategic asset allocation decision, pairwise correlations within asset classes should generally be:

• A. equal to correlations among asset classes.
• B. lower than correlations among asset classes.
• C. higher than correlations among asset classes.