1
CAPM Questions with Answers (100%
Correct Answers)
True or False:
Portfolio weights add up to 1 so that they represent the way we have divided
our money between the different individual investments in the portfolio.
Answer: TRUE
True or False:
Without trading, the portfolio weights will decrease for the stocks in the
portfolio whose returns are above the overall portfolio return. Answer: FALSE
True or False:
The expected return of a portfolio is simply the weighted average of the
expected returns of the investments within the portfolio. Answer: TRUE
True or False:
A portfolio weight is the fraction of the total investment in the portfolio held in
an individual investment in the portfolio. Answer: TRUE
True or False:
Correlation is the expected product of the deviations of two returns. Answer:
FALSE
True or False:
Because the prices of the stocks do not move identically, some of the risk is
averaged out in a portfolio. Answer: TRUE
True or False:
The covariance and correlation allow us to measure the co-movement of
returns. Answer: TRUE
, 2
True or False:
The amount of risk that is eliminated in a portfolio depends on the degree to
which the stocks face common risks and their prices move together. Answer:
TRUE
True or False:
While the sign of the correlation is easy to interpret, its magnitude is not.
Answer: FALSE
True or False:
When the covariance equals 0, the returns are uncorrelated. Answer: TRUE
True or False:
Independent risks are uncorrelated. Answer: TRUE
True or False:
To find the risk of a portfolio, we need to know more than the risk and return
of the component stocks; we need to know the degree to which the stocks'
returns move together. Answer: TRUE
True or False:
The variance of a portfolio depends only on the variance of the individual
stocks. Answer: FALSE
True or False:
A stock's return is perfectly positively correlated with itself. Answer: TRUE
True or False:
When the covariance equals 0, the stocks have no tendency to move either
together or in opposition of one another. Answer: TRUE
CAPM Questions with Answers (100%
Correct Answers)
True or False:
Portfolio weights add up to 1 so that they represent the way we have divided
our money between the different individual investments in the portfolio.
Answer: TRUE
True or False:
Without trading, the portfolio weights will decrease for the stocks in the
portfolio whose returns are above the overall portfolio return. Answer: FALSE
True or False:
The expected return of a portfolio is simply the weighted average of the
expected returns of the investments within the portfolio. Answer: TRUE
True or False:
A portfolio weight is the fraction of the total investment in the portfolio held in
an individual investment in the portfolio. Answer: TRUE
True or False:
Correlation is the expected product of the deviations of two returns. Answer:
FALSE
True or False:
Because the prices of the stocks do not move identically, some of the risk is
averaged out in a portfolio. Answer: TRUE
True or False:
The covariance and correlation allow us to measure the co-movement of
returns. Answer: TRUE
, 2
True or False:
The amount of risk that is eliminated in a portfolio depends on the degree to
which the stocks face common risks and their prices move together. Answer:
TRUE
True or False:
While the sign of the correlation is easy to interpret, its magnitude is not.
Answer: FALSE
True or False:
When the covariance equals 0, the returns are uncorrelated. Answer: TRUE
True or False:
Independent risks are uncorrelated. Answer: TRUE
True or False:
To find the risk of a portfolio, we need to know more than the risk and return
of the component stocks; we need to know the degree to which the stocks'
returns move together. Answer: TRUE
True or False:
The variance of a portfolio depends only on the variance of the individual
stocks. Answer: FALSE
True or False:
A stock's return is perfectly positively correlated with itself. Answer: TRUE
True or False:
When the covariance equals 0, the stocks have no tendency to move either
together or in opposition of one another. Answer: TRUE
