3. John picks four portfolios that were constructed by investing different weigh
ID: 2804856 • Letter: 3
Question
3. John picks four portfolios that were constructed by investing different weights in two st The expected return and STD of these portfolios are given below. Deviation 8% 9% 10% 1196 20% 25% 24% 27% Which of the following portfolios is definitely NOT on the efficient frontier? a. Portfolio X b. Portfolio Y c. Portfolio Z. d. Portfolio W 4. Suppose the CAPM holds and you have the following information on three assets: Systematic Risk 0.10 0.11 0.12 Firm-specific Risk 0.16 0.14 0.10 Asset Which one of the following statements is true? a. Asset A has the largest beta b. Asset B has the largest beta c. Asset C has the largest beta d. Cannot be determined from the information S. If the efficient market hypothesis (EMH) holds, choose the correct statement below a. There should be correlation between period returns b. Technical analysis can result in superior returns c. T he market price would represent the true value of an asset. u. Security analysis would be beneficial in increasing the return on a portfolio.Explanation / Answer
3. Portfolios on efficient frontier has the maximun return for a given risk.
of the given portfolios, Y has a greated S.D. than Z but a lesser return than Z. Thus it can not lie on the frontier as it gives lower return for more risk
b is the answer.
4. Assets which have greater beta has more idiosyncratic component in their returns compared to systematc risk.
So larger the ratio of firm specific risk/systematic risk larger the beta.
Of the givven assets A has a relatively larger ratio i.e. 0.16/0.1, than the ratio of other assets B = 0.14/0.11 , C=0.10/0.12.
a is the answer.
5. Efficient marker hypothesis proposes costless availability of information. if information is freely available its price would be reflected in the prices and market price should represent intrinsic price f an asset.
c is the answer
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