Question 1

10 out of 10 points

An investor invests 30% of his wealth in a risky asset with an expected rate of return of 15% and a
standard deviation of returns of 20% and 70% in a T-bill that pays 6%. His portfolios expected
return and standard deviation of returns are ________ and ________, respectively.
Answer
Selected Answer:
8.7%; 6%

Question 2
10 out of 10 points

Having a kinked capital allocation line can be a result of:

Answer
Selected Answer:
The borrowing rate exceeding the lending rate

Question 3
10 out of 10 points

An investors optimal balanced portfolio is the portfolio that:

Answer
Selected Answer:
Maximises his utility

Question 4
10 out of 10 points

Your optimal balanced portfolio consists of an optimal risky portfolio with expected return of 20%
and standard deviation of returns of 10% and a risk-free asset with expected return of 4%. Your level
of risk aversion is 8. What is the proportion of funds allocated to the optimal portfolio of risky assets
(y*)?
Answer
Selected Answer:
200%

Question 5
10 out of 10 points

The capital allocation line can be described as the:

Answer
Selected Answer:
Investment opportunity set formed with a risky asset and a risk-free asset

Question 6
10 out of 10 points

If investors can borrow and lend at the same risk free rate, which one of the following statements is
correct?
Answer
Selected Answer:
The capital allocation line is a straight line

Question 7
10 out of 10 points

The separation theorem says:

Answer
Selected
Answer:

The choice of the optimal risky portfolio is independent of the investors degree
of risk aversion

Question 8
10 out of 10 points

Which of the following statement(s) is (are) true regarding the selection of a portfolio from those
that lie on the capital allocation line?
Answer
Selected Answer:
B and C

Question 9
10 out of 10 points

If the borrowing rate is higher than the lending rate, which one of the following statements is
correct?
Answer
Selected
Answer:

Portfolios lying on different regions of the capital allocation line may have

different reward to variability ratios

Question 10
0 out of 10 points

Which of the following statements regarding the capital allocation line is false?
Answer
Selected Answer:
Both A and C are false

Question 1
10 out of 10 points

Which of the following securities would a risk-averse investor always choose as his risky asset in
his balanced portfolio, given that a Treasury-bill has a rate of return of 5%?
Answer
Selected Answer:
Security C: E(r) = 12%; Standard deviation = 10%

Question 2
10 out of 10 points

Given an optimal risky portfolio with expected return of 14% and standard deviation of returns of
22% and a risk free rate of 6%, what is the slope of the best feasible capital allocation line?
Answer
Selected Answer:
0.36

Question 3
10 out of 10 points

Suppose your initial wealth is $1000. The risk free asset makes up -40% of your optimal combined
(or balanced) portfolio. Telstra makes up 15% of your optimal risky portfolio. How much do you
invest in Telstra?
Answer
Selected Answer:
$210

Question 4
10 out of 10 points

Which of the following statements regarding the capital allocation line is false?
Answer
Selected
Answer:

The capital allocation line is also called the efficient frontier of risky assets in the
absence of a risk-free asset

Question 5
10 out of 10 points

Having a kinked capital allocation line can be a result of:

Answer
Selected Answer:
The borrowing rate exceeding the lending rate

Question 6
10 out of 10 points

If the borrowing rate is higher than the lending rate, which one of the following statements is
correct?
Answer
Selected
Answer:

Portfolios lying on different regions of the capital allocation line may have
different reward to variability ratios

Question 7
10 out of 10 points

Which of the following statement(s) is (are) true regarding the selection of a portfolio from those
that lie on the capital allocation line?
Answer
Selected Answer:
B and C

Question 8
10 out of 10 points

An investors optimal balanced portfolio is the portfolio that:

Answer
Selected Answer:
Maximises his utility

 Question 9
10 out of 10 points

The capital allocation line can be described as the:

Answer
Selected Answer:
Investment opportunity set formed with a risky asset and a risk-free asset

Question 10
10 out of 10 points

If investors can borrow and lend at the same risk free rate, which one of the following statements is
correct?
Answer
Selected Answer:
The capital allocation line is a straight line