Topic 5

Question 1

According to the Markowitz model, investors with the same risk-aversion coefficient will choose…

Answer 1

…the same (optimal) risky portfolio, if there is a risk-free asset in the economy.

Question 2

Systematic or market risk is diversifiable

Answer 2

FALSE

Question 3

Idiosyncratic or specific risk increases when adding more risky assets to our portfolio.

Answer 3

FALSE

Question 4

The total risk of the portfolio is reduced when increasing the number of risky assets. Note we assume correlations among them are different.

Answer 4

TRUE

Question 5

The Gordon model does not use the stock dividends for computing the stock price.

Answer 5

FALSE

Question 6

Assume that there is a market with n risky assets and one risk free asset. Under the mean variance model…

Answer 6

…some risk averse investors will invest in a portfolio made just with the optimal portfolio (tangency portfolio).

Question 7

Consider an investment opportunity set just composed by risky assets. All the correlations (p) among assets are comprised in between -1<p<1;

The minimum risk portfolio of the investment opportunity set has zero volatility.

Answer 7

FALSE

Question 8

Consider an investment opportunity set just composed by risky assets. All the correlations (p) among assets are comprised in between -1<p<1;

If you are situated on the efficient frontier, you cannot obtain more return without increasing your risk

Answer 8

TRUE

Question 9

Consider an investment opportunity set just composed by risky assets. All the correlations (p) among assets are comprised in between -1<p<1;

Dominated portfolios offer more return for the same level of risk.

Answer 9

FALSE

Question 10

Consider an investment opportunity set just composed by risky assets. All the correlations (p) among assets are comprised in between -1<p<1;

All investors will choose the same optimal portfolio no matter their risk aversion level is.

Answer 10

FALSE

Question 11

Assume an economy without risk-free asset,

The optimal risky portfolio is the tangent portfolio.

Answer 11

FALSE; efficient frontier

Question 12

Assume an economy without risk-free asset,

All efficient portfolios are located in the efficient frontier. This line maximises the return for a given risk level (and vice versa).

Answer 12

TRUE

Question 13

Assume that investors can access to the same investment opportunity set, which includes both risk and risk-free assets. According to the mean variance model (Markowitz);

the optimal portfolio depends on the investor’s risk aversion level.

Answer 13

FALSE

Question 14

Assume that investors can access to the same investment opportunity set, which includes both risk and risk-free assets. According to the mean variance model (Markowitz);

Dominated portfolios are (mean-variance) efficient portfolios

Answer 14

FALSE

Question 15

Assume that investors can access to the same investment opportunity set, which includes both risk and risk-free assets. According to the mean variance model (Markowitz);

In the absence of risk-free asset, there exists a set of efficient portfolios, but there is no optimal portfolio

Answer 15

TRUE

Question 16

Assume that investors can access to the same investment opportunity set, which includes both risk and risk-free assets. According to the mean variance model (Markowitz);

the minimum variance portfolio is the optimal portfolio, no matter the investor’s risk aversion level.

Answer 16

FALSE

Question 17

Assume an economy without risk-free rate:

Efficient portfolios are in the efficient frontier, and each investor will choose an efficient portfolio depending on their preferences

Answer 17

TRUE

Question 18

Assume an economy without risk-free rate:
The optimal portfolio is the tangent portfolio, where the CAL is the efficient frontier and it exists one optimal portfolio.

Answer 18

FALSE, No CAL, efficient frontier.

Question 19

Assume an economy without risk-free rate:

The optimal portfolio is in the efficient frontier, and it is common to all investors.

Answer 19

FALSE

Question 20

Assume an economy without risk-free rate:

The optimal portfolio is the minimum variance portfolio

Answer 20

FALSE

Question 21

Systematic risk

Answer 21

cannot be eliminated by diversification