61 Questions
| Attempts: 775

Questions and Answers

- 1.If markets are strong-form efficient, the average return in the long-run on any (even actively managed) investment will be zero.
- A.
True

- B.
False

- 2.According to the Random Walk Model, even an event that happened a long time ago can still be "felt" in today's prices (in the sense that, if the event had not happened, asset prices today would be different).
- A.
True

- B.
False

- 3.According to the "Random Walk Model", the best prediction of an asset's future price is the long-run average of its price in the past.
- A.
True

- B.
False

- 4.If markets are weak-form efficient, it is not worth paying a management fee to a fund manager who claims to "beat the market" by implementing "technical trading strategies".
- A.
True

- B.
False

- 5.A portfolio of stocks with identical returns and volatilities will have the same expected return as, but lower volatility the constituent stocks.
- A.
True

- B.
False

- 6.For diversification to have any effect at all, at least some of the portfolio's constituent stocks must have a negative correlation with one another.
- A.
True

- B.
False

- 7.Diversification cannot work if all the stocks contained in the portfolio have identical high volatilities.
- A.
True

- B.
False

- 8.The volatility that is caused by a systematic risk factor can only be reduced by diversification if the factor is negatively correlated with the business cycle.
- A.
True

- B.
False

- 9.If there are two assets that are perfectly negatively correlated, you can firm a portfolio that has zero total risks.
- A.
True

- B.
False

- 10.In the risk-return diagram, individual assets will always plot on or inside (i.e. to the right of) the efficient frontier.
- A.
True

- B.
False

- 11.If you add an additional risky asset to an existing universe of risky assets, the GMV can only move to the north-east, but not to the west.
- A.
True

- B.
False

- 12.If no short-selling is allowed, the expected return on any portfolio cannot exceed the maximum of the returns on the constituent assets.
- A.
True

- B.
False

- 13.If no short-selling is allowed, the volatility of any portfolio cannot be lower than the minimum of the volatilities of the constituent assets.
- A.
True

- B.
False

- 14.We have a risk-free asset, both expected return volatility of the optimal "tangency" portfolio are inversely related to the risk-free rate of interest.
- A.
True

- B.
False

- 15.We have a risk-free asset, the optimal complete portfolio for two investors with different risk aversion coefficients will have different Sharpe ratios.
- A.
True

- B.
False

- 16.A portfolio of stocks with identical betas and identical volatilities will have the same expected return as, but lower volatility than its constituent stocks.
- A.
True

- B.
False

- 17.If you add a negative-beta asset to a portfolio of assets with positive betas, you ill reduce the portfolio's volatility but not its expected return.
- A.
True

- B.
False

- 18.In the time-series formulation of the CAPM, "alpha" is a measure of an asset's idiosyncratic risk.
- A.
True

- B.
False

- 19.Assets or portfolios with negative beta will always plot below the security markets line (SML).
- A.
True

- B.
False

- 20.A bond's value is inversely related to interest rates (as proxied by the yield)
- A.
True

- B.
False

- 21.A bond is valued at part if and only if the coupon rate and yield are equal.
- A.
True

- B.
False

- 22.Other things being equal, a bond with a higher coupon rate will have a longer duration than an otherwise identical bond with lower coupons.
- A.
True

- B.
False

- 23.Macaulay's duration of a zero-coupon is equal to the bond's maturity.
- A.
True

- B.
False

- 24.If markets are strong-form efficient, the long-run average return on any (even actively managed) investment strategy will be zero.
- A.
True

- B.
False

- 25.According to the "Random Walk Model", the best forecast of the next period's return on any asset is the return in the previous period.
- A.
True

- B.
False

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