Portfolio Management MCQ - Portfolio Management Section 1

46 Three investors, Bill, Jill, and Mill, invest in individual securities. The table below shows the expected annual returns, expected standard deviation, and the correlation between their security and the market.

Investor	Expected Annual Return (%)	Expected Standard Deviation (%)	Correlation between the security and the market
Bill	15	21	0.85
Jill	12	21	0.75
Mill	12	28	0.65

The following information is available for the market:
Expected Annual Return:11%
Expected Standard Deviation: 16%
Which investor is most likely to be exposed to the highest total risk?

The highest total risk is calculated based on the highest total variance. Bill: 0.21² = 0.0441 Jill: 0.21² = 0.0441 Mill: 0.28² = 0.0784 Thus Mill is exposed to the highest total risk.

47 Three investors, Bill, Jill, and Mill, invest in individual securities. The table below shows the expected annual returns, expected standard deviation, and the correlation between their security and the market.

Investor	Expected Annual Return(%)	Expected Standard Deviation(%)	Correlation between the security and the market
Bill	15	21	0.85
Jill	12	21	0.75
Mill	12	28	0.65

The following information is available for the market:
Expected Annual Return: 11%
Expected Standard Deviation: 16%
Which investor has invested in a security with the highest beta?

48 Three investors, Bill, Jill, and Mill, invest in individual securities. The table below shows the expected annual returns, expected standard deviation, and the correlation between their security and the market.

Investor	Expected Annual Return(%)	Expected Standard Deviation(%)	Correlation between the security and the market
Bill	15	21	0.85
Jill	12	21	0.75
Mill	12	28	0.65

The following information is available for the market:
Expected Annual Return: 11%
Expected Standard Deviation: 16%
Which investor is exposed to the least amount of market risk?

49 In a class discussion, Mary stated that the average beta for all assets in the market is less than 1. Amanda argued that it was equal to 1; whereas James insisted it exceeded 1. Which of the following students is most likely to be correct?

By definition, the average beta of all assets in the market is equal to 1.

50 A security characteristic line’s slope is most likely to be the asset’s:

The excess return of the security on the excess return of the market is plotted on a security characteristic line. The slope of this line is the beta, and the intercept is the Jensen’s alpha