1.On pretax and basis The S&P 500 Index outperformed the BlackRock Capital Appre

Question

1.On  pretax and basis The S&P 500 Index outperformed the BlackRock Capital Appreciation Fund between 9/2003 and 9/2012.

True or False?

2.You are given the following information:

Asset 1 and asset 2 returns are random. In fact you think that the returns are independent and evenly distributed between -1% and 5%. In Excel this is (=RANDBETWEEN(1,5)/100)

A portfolio divided equally between asset 1 and asset 2 is inferior to either 100% invested in asset A or 100% invested in asset 2 if our investment criterion is to minimize the ratio of risk to reward.

(You use a sample of at least 50 returns before you make conclusions.)

True

False

3.Between 1969 and 2009 the two year rolling correlation between the S&P 500 and the MSCI EAFE Index has been steady at .4.

True

False

4.It is possible to combine risky assets in proportions such that the resulting portfolio has less risk than the assets themselves.

True

False

5.Daniel Kahneman has shown that investors are frequently overconfident and this overconfidence leads to poor judgments regarding investments.

True

False

6.Yield premiums of Baa rated bonds relative to ten year treasury bonds were higher in June 2006 than in November 2013.

True

False

7.

An investor who buys one year treasury notes in year 1 and then rolls over the principal into new investments in one year treasury notes every year for 30 years will have locked in certain annual rate of return for 30 years.

True

False

Explanation / Answer

Question 1

The bond CUSIP # 913026AT7 traded as low as 66 percent of par in 2008.

True

False

2.94118 points

Question 2

An investor who buys one year treasury notes in year 1 and then rolls over the principal into new investments in one year treasury notes every year for 30 years will have locked in certain annual rate of return for 30 years.

True

False

2.94118 points

Question 3

Investors who have combined the MSCI EAFE Index with the S&P 500 index between the years 1970 to 2009 have exposed themselves to less risk and received greater returns than those investors who held only the S&P 500.

True

False

2.94118 points

Question 4

On pretax and basis The S&P 500 Index outperformed the BlackRock Capital Appreciation Fund between 9/2003 and 9/2012.

True

False

2.94118 points

Question 5

Base your answer on yearly data from the following series that is available from Board of Governors of the Federal Reserve Website via the DDP Program.

10-year Treasury constant maturity (H15/H15/RIFLGFCY10_N.M)

Moody's Aaa (H15/H15/RIMLPAAAR_N.M)

Moody's Baa (H15/H15/RIMLPBAAR_N.M)

In October of 2001 investors demanded a larger yield premium to hold corporate bonds rated Baa by Moody's relative to the ten year treasury than in June of 2006.

True

False

2.94118 points

Question 6

As the number of assets whose returns are not perfectly correlated are added to a portfolio the risk of the portfolio will decline. The amount of risk reduction that can be achieved is limited. Assume that correlation coefficients between assets are not minus 1.

True

False

2.94118 points

Question 7

Prices of risky corporate bonds generally fell relative to the ten year treasury note between October 2001 and June 2006.

True

False

2.94118 points

Question 8

The maximum sales charge imposed on investors in the A shares of the BlackRock Capital Appreciation Fund is 5.25% of the share price.

True

False

2.94118 points

Question 9

If you invest in the BlackRock Capital Appreciation Fund your return will be affected by how frequently assets in the portfolio are turned over. This is because gains are taxed and transaction costs are positive. You would have to pay a share of these taxes and transaction costs.

True

False

2.94118 points

Question 10

Regulators require markets to be efficient.

True

False

2.94118 points

Question 11

Between 1969 and 2009 the two year rolling correlation between the S&P 500 and the MSCI EAFE Index has been steady at .4.

True

False

2.94118 points

Question 12

Investors assign are indifferent between the maximum losses that can be suffered from investments. Rather investors only care about expected values.

True

False

2.94118 points

Question 13

The annual yield investors demanded in November of 2008 from Baa rated bonds was 9.21% while in June of 2006 the required annual yield on these securities was 5.25%.

True

False

2.94118 points

Question 14

The bond CUSIP # 913026AT7 is trading at a premium.

True

False

2.94118 points

Question 15

As of 11/30/2013 the BlackRock Capital Appreciation Fund owned 4.6% of Google Inc.

True

False

2.94118 points

Question 16

As of 11/30/2013 One of the top five holdings of the BlackRock Capital Appreciation Fund as Apple Inc.

True

False

2.94118 points

Question 17

Herd behavior is can lead to the compounding of errors in valuation of financial assets.

True

False

2.94118 points

Question 18

On pretax and basis The Russell 1000 Growth Index outperformed the BlackRock Capital Appreciation Fund between 9/2003 and 9/2012.

True

False

2.94118 points

Question 19

Moody

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