Investment Portfolio Management Practice Questions & Answers

Investment Portfolio and CAPM Practice Solutions

• Question 1: Portfolio beta (0.6)
• Question 2: Expected return under CAPM (7%)
• Question 3: Expected return with new allocation (6.5%)
• Question 4: Passive investment strategy (Zero alpha)
• Question 5: Net Asset Value calculation ($50)
• Question 6: Definition of NAV (Market value of assets minus liabilities divided by shares outstanding)
• Question 7: Portion of market risk (64%)
• Question 8: Mutual fund return after expenses (4.5%)
• Question 9: Net Asset Value City Street Fund ($40)
• Question 10: Impact on portfolio value (Decreases to $460 million)
• Question 11: Impact on shares outstanding (Decreases to 9 million)
• Question 12: New NAV after shares sold ($40)
• Question 13: Risk premium for stocks (60%)
• Question 14: Optimal risky portfolio weights (0.5 stocks and 0.5 bonds)
• Question 15: Sharpe ratio for bonds (0.75)
• Question 16: Expected return of optimal risky portfolio (42.5%)
• Question 17: Standard deviation of optimal risky portfolio (22.4%)
• Question 18: Slope of the CAL (Sharpe ratio)
• Question 19: CAPM compensation (Market risk/systematic risk)
• Question 20: Highest diversification benefit (-1.0)
• Question 21: Expected return of portfolio on MVF (Minimum global variance portfolio)
• Question 22: A rational investor should invest in (Any point on the MVF above point G)
• Question 23: The portfolio with the highest Sharpe ratio is (Portfolio P)
• Question 24: Which allocation reflects leverage (wa = 1.2 and wb = -0.2)
• Question 25: Initial margin after purchasing JPM shares (45%)
• Question 26: New margin when JPM price rises to $150 (63%)
• Question 27: A stock with higher risk than the market portfolio (Stock A)

Advanced Portfolio Analysis and Optimization

• Question 28: The figure is a graphical representation of (CAPM)
• Question 29: Alpha return of stock A (Alpha > 0)
• Question 30: Alpha return of stock C (Alpha = 0)
• Question 31: Portfolio optimization explanation (Solver minimizes the portfolio risk (C14) by changing the portfolio weights (G4:G8) subject to the constraints that the portfolio return equals 0.8 (C13) and that the weights sum to 1 (G9 = 1).)
• Question 32: What does an allocation of 0.40 in VOX represent (An allocation of 0.40 in VOX means that 40% of the total portfolio is invested in the VOX ETF. In other words, if the total investment is $100, then $40 would be invested in VOX and the remaining $60 would be allocated to the other ETFs according to their portfolio weights.)
• Question 33: The portfolio shown in the Solver output is (Efficient portfolio)