PORTFOLIO MANAGEMENT-

PORTFOLIO MANAGEMENT- QUESTIONS WITH ANSWERS. C - Answer-A portfolio has the following returns: Portfolio Returns 2006 2.4 2007 9.6 2008 4.0 2009 5.6 2010 4.8 2011 3.2 The sample variance of the portfolio is closest to: A. 0.23%. B. 0.36%. C. 0.28%. B - Answer-When considering a portfolio that is optimal for one investor, a second investor with a higher risk aversion would most likely: A. expect a higher variance for the portfolio. B. derive a lower utility from the portfolio. C. have a lower return expectation for the portfolio. C - Answer-Based on the following historical data, which is closest to the standard deviation for the two-asset portfolio shown in the table? Asset A Asset B Asset A and B Standard deviation 4.7% 7.7% Portfolio weight 0.4 0.6 Correlation 0.3 A. 6.5% B. 5.0% C. 5.5% A - Answer-When constructing the optimal portfolios for investors with different risk preferences, the investor with the higher risk aversion is most likely to have a: A. lower expected return. B. steeper capital allocation line. C. flatter indifference curve. C - Answer-Which of the following types of investment clients most likely have the lowest liquidity needs? A. Insurance companies B. Banks C. Endowments and foundations C - Answer-Two risk managers are discussing how an organization's risk tolerance should be determined. The first manager says, "The risk tolerance must reflect the losses or shortfalls that will cause the organization to fail to meet critical objectives." The second manager responds, "The risk tolerance must reflect the external forces that bring uncertainty to the organization." Which of them is most likely correct? A. The second risk manager B. The first risk manager C. Both risk managers A - Answer-A successful portfolio risk budget will most likely: A. lead to investment in assets with the highest return per unit of risk. B. be based on multiple sources of risk. C. produce superior performance compared to passive investing. B - Answer-With respect to the portfolio management process, the execution step most likely includes: A. portfolio monitoring. B. asset allocation. C. developing the investment policy statement. B - Answer-An investor earns the following annual returns over a four-year period: Year Annual Return 1 12.2% 2 −8.5% 3 6.7% 4 −3.3% The geometric mean annual return is closest to: A. 5.93%. B. 1.45%. C. 1.78%. A - Answer-For a portfolio consisting of two assets with a correlation coefficient of +1.0, it is most likely that portfolio risk is: A. equal to the weighted average of the risk of the two assets