Complete 2 quizzes attached. Quiz 1 has 20 questions. Quiz 2 has 6 questions with reference to the excel spreadsheet.
1.
Question 1
The S&P 500 index of U.S. stocks has an expected return of 0.10 and a variance of 0.04, and the index of Emerging Market stocks has an expected return of 0.08 and a variance of 0.03. Their correlation is 0.25 and the risk-free rate is 0.03. What is your optimal allocation to the S&P 500 index if you maximize your tradeoff between portfolio expected return and variance, your risk aversion is 3, and you do not face any financial constraints? Answer in decimal form with two decimals (i.e. 20.33% is 0.20).
1 point
2.
Question 2
Assume you maximize your tradeoff between your portfolio's expected return and variance. All else equal, an increase in the volatility of an asset will increase its allocation.
1 point
True
False
3.
Question 3
Assume you maximize your tradeoff between your portfolio's expected return and variance, and you do not face any financial constraints. All else equal, your allocation across risky assets (i.e. how much you allocate to one risky asset versus another risky asset) changes as your risk aversion increases.
1 point
True
False
4.
Question 4
Assume you maximize your tradeoff between your portfolio's expected return and variance. All else equal, you invest more in risky assets when you become less risk averse.
1 point
True
False
5.
Question 5
Imposing some weight constraints usually leads to better performing portfolios... (more than one answer may be true)
1 point
because it limits the impact of estimation errors made on volatilities.
because it limits the impact of estimation errors made on expected returns.
because it increases turnover.
because it prevents one company held in a portfolio from going bankrupt.
6.
Question 6
A limit on portfolio net leverage…
1 point
limits the volatility of the portfolio.
prevents any asset from having a negative weight.
limits the amount of trading
limits the sum of portfolio weights.
7.
Question 7
Which of the following is not a reason for imposing constraints on your portfolio?
1 point
Preventing a company going bankrupt from having a large impact on a portfolio.
Controlling for estimation errors made when estimating expected returns.
Manage the liquidity of the portfolio.
Regulatory and fiscal reasons.
8.
Question 8
At maturity, the call option holder has the option to buy the underlying stock.
1 point
True
False
9.
Question 9
Which of the following is false? Tactical asset allocation aims to:
1 point
take advantage of time variations in expected returns due to irrationality.
take advantage of time variations in expected returns due to time-varying risk premiums.
overweigh the stock market compared to its strategic allocation.
mitigate short-term risk.
10.
Question 10
Buying a put option on the stock market is a way of:
1 point
protecting oneself from adecrease in the stock market
betting that the stock market will not fall by a lot
benefiting from a sudden increase in the stock market
protecting oneself from a decrease in market volatility
11.
Question 11
A put option is said to be in-the-money if the underlying asset`s price is below the strike price.
1 point
True
False
12.
Question 12
If the underlying price is 100EUR, then a call option with a strike price of 90EUR is said to be out-of-the money.
1 point
True
False
13.
Question 13
A put option on a stock with a strike price of 50USD was bought for a price of 5USD. What is the profit or loss if the underlying stock is trading at 40USD at maturity? Express your answer with no decimals (i.e. 20 for a profit of 20USD or -20 for a loss of 20USD).
1 point
14.
Question 14
A put option on a stock with a strike price of 50USD was bought for a price of 2USD. What is the profit or loss if the underlying stock is trading at 52USD at maturity? Express your answer with no decimals (i.e. 20 for a profit of 20USD or -20 for a loss of 20USD).
1 point
15.
Question 15
Let's say a long-term bond issued by the French government has an expected return of 0.02 and a volatility of 0.10, and the CAC 40 index of French stocks has an expected return of 0.05 and a volatility of 0.2. Their covariance is 0.002 and the risk-free rate is 0.04. What is your optimal allocation to CAC 40 index if you maximize your tradeoff between portfolio expected return and variance, your risk aversion is 3, and you do not face any financial constraints? Answer in decimal form with two decimals (i.e. 20.33% is 0.20).
1 point
16.
Question 16
In your portfolio, you allocated 40% to the Chinese stock market, 80% to the British stock market, -40% to the U.S. stock market, and 20% to the risk-free asset (i.e. you borrowed money). What is your net leverage (using only risky assets)? Answer in decimal form with one decimal (i.e. 20.33% is 0.2).
1 point
17.
Question 17
All else equal, an increase in expected returns of two risky assets will decrease the volatility of a portfolio containing these two assets.
1 point
True
False
18.
Question 18
Which of the following is not a risk factor used in asset pricing models, as discussed in this module?
1 point
the carry factor
the dividend yield factor
the value factor
the market portfolio
19.
Question 19
Why is a good asset pricing model important for investment management?
1 point
it says which risk factors are compensated with average returns
it says which portfolio constraints to use
all of the above
it says that only the market portfolio has positive returns on average
20.
Question 20
A currency forward is a financial instrument... (multiple answers may be true).
1 point
whose price depends on the difference between the exchange rate and the strike price
that allows us to buy or sell a currency at a predetermined exchange rate
whose price depends on whether it is a call or a put option
that gives the option to buy one currency