Investment Analysis Exam Paper
Investment Analysis
Sample Mid-Exam Paper Formula Sheet Answers
1
Sample Mid-Exam Paper PART I
2 1. Let µm = 0.01 and σm = 0.002 be the sample mean and variance of monthly 2 returns of a risky asset. Denote µa and σa the annualized sample mean and variance of returns of the risky asset. Then 2 (a). µa = 0.01 and σa = 0.024; 2 (b). µa = 0.12 and σa = 0.024; 2 (c). µa = 0.12 and σa = 0.288; (d). µa = 0.12 and σa = 0.024; (e). None of the above.
2. Which of the following statements is correct? (a). Expected utility of wealth is constant on the MVS. (b). In the standard deviation and expected return space, the mean-variance combination line is convex while the indifference curve is concave. (c). The variance of portfolio with equal proportions of n assets tends to zero as n → ∞. (d). For portfolios of many assets, it is not possible to reduce the risk to zero. (e). None of the above. 3. Consider a portfolio of one risky asset and one risk-free asset. Which of the following statements is correct? (a). the correlation between the two assets is not zero. (b). the combination line will be a straight line only if the correlation coefficient equals -1 or +1. (c). the combination line will be a straight line. (d). the combination line will not be a straight line. (e). none of the above. 4. In the Single Factor Model, you can best measure the contribution that an individual stock makes to the variance of a well diversified portfolio by the stock’s: (a). Variance (b). Correlation coefficient. (c). Residual variance. (d). Systematic risk. (e). None of the above.
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E(rP ) A ⋆ X Y ⋆ C σ(rP ) Z
B⋆
F IGURE 1. The MVS for assets X, Y and Z, where B is the global minimum variance portfolio. Refer to Figure 1 for questions 5-7 5. Which of the following statements is correct? (a). Without short-selling, you can select portfolio A. (b). All the weights of portfolio C are always positive. (c). All the weights of portfolio A must be positive. (d). It must be the
Sample Mid-Exam Paper Formula Sheet Answers
1
Sample Mid-Exam Paper PART I
2 1. Let µm = 0.01 and σm = 0.002 be the sample mean and variance of monthly 2 returns of a risky asset. Denote µa and σa the annualized sample mean and variance of returns of the risky asset. Then 2 (a). µa = 0.01 and σa = 0.024; 2 (b). µa = 0.12 and σa = 0.024; 2 (c). µa = 0.12 and σa = 0.288; (d). µa = 0.12 and σa = 0.024; (e). None of the above.
2. Which of the following statements is correct? (a). Expected utility of wealth is constant on the MVS. (b). In the standard deviation and expected return space, the mean-variance combination line is convex while the indifference curve is concave. (c). The variance of portfolio with equal proportions of n assets tends to zero as n → ∞. (d). For portfolios of many assets, it is not possible to reduce the risk to zero. (e). None of the above. 3. Consider a portfolio of one risky asset and one risk-free asset. Which of the following statements is correct? (a). the correlation between the two assets is not zero. (b). the combination line will be a straight line only if the correlation coefficient equals -1 or +1. (c). the combination line will be a straight line. (d). the combination line will not be a straight line. (e). none of the above. 4. In the Single Factor Model, you can best measure the contribution that an individual stock makes to the variance of a well diversified portfolio by the stock’s: (a). Variance (b). Correlation coefficient. (c). Residual variance. (d). Systematic risk. (e). None of the above.
2
E(rP ) A ⋆ X Y ⋆ C σ(rP ) Z
B⋆
F IGURE 1. The MVS for assets X, Y and Z, where B is the global minimum variance portfolio. Refer to Figure 1 for questions 5-7 5. Which of the following statements is correct? (a). Without short-selling, you can select portfolio A. (b). All the weights of portfolio C are always positive. (c). All the weights of portfolio A must be positive. (d). It must be the