Multiple choice

1. The range of values that correlation coefficients can take can be:  

a. Zero to +1 

b. -1 to +1 

c. -infinity to +infinity 

d. Zero to +infinity 

2. If the covariance between stock A and stock B is 100, the standard deviation of stock A is 10% and that of stock B is 20%, calculate the correlation coefficient between the two securities.  

a. -0.5 

b. +1.0 

c. +0.5 

d. None of the above 

3. For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks is:  

a. +1 

b. -0.5 

c. -1 

d. 0 

4. In the case of a portfolio of N-stocks, the formula for portfolio variance contains:  

a. N variance terms 

b. N(N - 1)/2 variance terms 

c. N2 variance terms 

d. None of the above 

5. In the case of a portfolio of N-stocks, the formula for portfolio variance contains:  

a. N covariance terms 

b. N(N - 1)/2 covariance terms 

c. N2 covariance terms 

d. None of the above 

6. The "beta" is a measure of:  

a. Unique risk 

b. Total risk 

c. Market risk 

d. None of the above 

7. The beta of market portfolio is:  

a. + 1.0 

b. +0.5 

c. 0 

d. -1.0 

8. For each additional 1% change in the market return, Amazon stock return on the average changes by:  

a. 1.26% 

b. 1.59% 

c. 2.2% 

d. None of the above 

9. The beta of Nestle measured relative to its home market is:  

a. 0.17 

b. 1.54 

c. 1.01 

d. None of the above 

10. If the standard deviation of returns of the market is 20% and the beta of a well-diversified portfolio is 1.5, calculate the standard deviation of the portfolio:  

a. 30% 

b. 20% 

c. 10% 

d. None of the above