Submitted May 1, 2023 at 5:42pm
Question 1
0 / 1 pts
If you own a well-diversified portfolio, which of the following risks do you NOT need to be so
concerned about?
You Answered
War and terrorism
Unexpected changes in Federal Reserve policy
Financial crises
Correct Answer
A sudden death of a firm's CEO
A well diversified portfolio only has to worry about unsystematic risks. These risks are
company/industry related risks.
Systematic risks on the other hand have an effect on all stocks and cannot be diversified away.
Question 2
0 / 1 pts
The covariance between (the returns of) two stocks (Saguaro & Sandstorm) is 0.008
Saguaro's returns have a standard deviation of 23%
Sandstorm's returns have a standard deviation of 15%
What is the correlation coefficient between (the returns of) the two stocks?
(Answer to the nearest 0.01)
You Answered
5
Correct Answer
0.23 margin of error +/- 0.05
The formula for correlation is,
CorrA,B = CovA,B/(SDA * SDB)
*Make sure the SD is in decimals. Hence, SD/100 to make it a decimal.
Question 3
0 / 1 pts
A portfolio is formed with the following 2 stocks:
Desert, Inc. has a standard deviation of it's returns equal to 48%
Mountain, Inc. has a standard deviation of it's returns equal to 10%
60% of the portfolio is invested in Desert and the remainder of the portfolio is invested in
Mountain
The correlation coefficient (between Desert's and Mountain's returns) is equal to 0.4
What is the standard deviation of the portfolio?
(Answer to the nearest 0.01%)
You Answered
55
Correct Answer
30.62 margin of error +/- 0.05
First, we find the weight of investment in Mountain portfolio,
Mountain Weight = 100% - Desert Weight
Next we find the variance of the portfolio,
VarD,M = (WD^2 * SDD^2) + (WM^2 * SDM^2) + (2CorrD,M * WD * SDD * WM * SDM)
Finally we square root the variance to find standard deviation,
SDD,M = sqrt(VarD,M)
*Make sure all calculations are in decimals while the final answer is in %
Question 4
0 / 1 pts
The covariance between (the returns of) two stocks (Saguaro & Sandstorm) is 0.006
Saguaro's returns have a standard deviation of 25%
Sandstorm's returns have a standard deviation of 28%
What is the correlation coefficient between (the returns of) the two stocks?
(Answer to the nearest 0.01)
You Answered
55
Correct Answer
0.09 margin of error +/- 0.05
The formula for correlation is,
CorrA,B = CovA,B/(SDA * SDB)
*Make sure the SD is in decimals. Hence, SD/100 to make it a decimal.
Question 5
0 / 1 pts
You own a portfolio containing the following 3 stocks - the dollar amounts invested in each
stock, along with each stock’s return are indicated below.
Stock Amount Invested Return
A $500,000 -30%
B $300,000 30%
C $800,000 60%
Calculate the portfolio return.
(Answer to the nearest 0.01%)
You Answered
5
Correct Answer
26.25 margin of error +/- 0.05
First find all the returns for each portfolio and sum them up,
Total Return = (InvA * ReturnA) + (InvB * ReturnB) + (InvC * ReturnC)
Next, find the total amount invested,
Total Invested = InvA + InvB + InvC
Finally, calculate the portfolio return by dividing the total return with the total invested,
Portfolio Return = Total Return/Total Invested
*Make sure the final answer is in percentage by multiplying 100
Question 6
0 / 1 pts
You own a portfolio containing the following 3 stocks - the fractions (of the portfolio) invested in
each stock, along with each stock’s return are indicated below.
Stock % of Portfolio Return
FinTech 20% -30%
BioTech 20% 20%
OldEcon Remainder of Portfolio 40%
Calculate the portfolio return.
(Answer to the nearest 0.01%)
You Answered
5
Correct Answer
22 margin of error +/- 0.05
First, find the % of OldEcon in the portfolio,
OldEcon = 100% - FinTech - BioTech
The portfolio return is the sum of all the weight of the portfolios multiplied by their return,
Portfolio Return = (FinTech% * RFintech) + (BioTech% * RBiotech) + (OldEcon% * ROldEcon)
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