投资学第7版Test-Bank答案06

Chapter6RiskAversionandCapitalAllocationtoRiskyAssets112MultipleChoiceQuestions1.Whichofthefollowingstatementsregardingrisk-averseinvestorsistrue?A)Theyonlycareabouttherateofreturn.B)Theyacceptinvestmentsthatarefairgames.C)Theyonlyacceptriskyinvestmentsthatofferriskpremiumsovertherisk-freerate.D)Theyarewillingtoacceptlowerreturnsandhighrisk.E)AandB.Answer:CDifficulty:Moderate2.Whichofthefollowingstatementsis(are)true?I)Risk-averseinvestorsrejectinvestmentsthatarefairgames.II)Risk-neutralinvestorsjudgeriskyinvestmentsonlybytheexpectedreturns.III)Risk-averseinvestorsjudgeinvestmentsonlybytheirriskiness.IV)Risk-lovinginvestorswillnotengageinfairgames.A)IonlyB)IIonlyC)IandIIonlyD)IIandIIIonlyE)II,III,andIVonlyAnswer:CDifficulty:ModerateRationale:Risk-averseinvestorsconsiderariskyinvestmentonlyiftheinvestmentoffersariskpremium.Risk-neutralinvestorslookonlyatexpectedreturnswhenmakinganinvestmentdecision.3.Inthemean-standarddeviationgraphanindifferencecurvehasa________slope.A)negativeB)zeroC)positiveD)northeastE)cannotbedeterminedAnswer:CDifficulty:EasyRationale:Therisk-returntrade-offisoneinwhichgreaterriskistakenifgreaterreturnscanbeexpected,resultinginapositiveslope.Chapter6RiskAversionandCapitalAllocationtoRiskyAssets1134.Inthemean-standarddeviationgraph,whichoneofthefollowingstatementsistrueregardingtheindifferencecurveofarisk-averseinvestor?A)Itisthelocusofportfoliosthathavethesameexpectedratesofreturnanddifferentstandarddeviations.B)Itisthelocusofportfoliosthathavethesamestandarddeviationsanddifferentratesofreturn.C)Itisthelocusofportfoliosthatofferthesameutilityaccordingtoreturnsandstandarddeviations.D)Itconnectsportfoliosthatofferincreasingutilitiesaccordingtoreturnsandstandarddeviations.E)noneoftheabove.Answer:CDifficulty:ModerateRationale:Indifferencecurvesplottrade-offalternativesthatprovideequalutilitytotheindividual(inthiscase,thetrade-offsaretherisk-returncharacteristicsoftheportfolios).5.Inareturn-standarddeviationspace,whichofthefollowingstatementsis(are)trueforrisk-averseinvestors?(Theverticalandhorizontallinesarereferredtoastheexpectedreturn-axisandthestandarddeviation-axis,respectively.)I)Aninvestor'sownindifferencecurvesmightintersect.II)Indifferencecurveshavenegativeslopes.III)Inasetofindifferencecurves,thehighestoffersthegreatestutility.IV)Indifferencecurvesoftwoinvestorsmightintersect.A)IandIIonlyB)IIandIIIonlyC)IandIVonlyD)IIIandIVonlyE)noneoftheaboveAnswer:DDifficulty:ModerateRationale:Aninvestor'sindifferencecurvesareparallel,andthuscannotintersectandhavepositiveslopes.Thehighestindifferencecurve(theoneinthemostnorthwesternposition)offersthegreatestutility.Indifferencecurvesofinvestorswithsimilarrisk-returntrade-offsmightintersect.Chapter6RiskAversionandCapitalAllocationtoRiskyAssets1146.Eliasisarisk-averseinvestor.Davidisalessrisk-averseinvestorthanElias.Therefore,A)forthesamerisk,DavidrequiresahigherrateofreturnthanElias.B)forthesamereturn,EliastolerateshigherriskthanDavid.C)forthesamerisk,EliasrequiresalowerrateofreturnthanDavid.D)forthesamereturn,DavidtolerateshigherriskthanElias.E)cannotbedetermined.Answer:DDifficulty:ModerateRationale:Themoreriskaversetheinvestor,thelessriskthatistolerated,givenarateofreturn.7.Whenaninvestmentadvisorattemptstodetermineaninvestor'srisktolerance,whichfactorwouldtheybeleastlikelytoassess?A)theinvestor'spriorinvestingexperienceB)theinvestor'sdegreeoffinancialsecurityC)theinvestor'stendencytomakeriskyorconservativechoicesD)thelevelofreturntheinvestorprefersE)theinvestor'sfeelingaboutlossAnswer:DDifficulty:ModerateUsethefollowingtoanswerquestions8-9:Assumeaninvestorwiththefollowingutilityfunction:U=E(r)-3/2(s2).8.Tomaximizeherexpectedutility,shewouldchoosetheassetwithanexpectedrateofreturnof_______andastandarddeviationof________,respectively.A)12%;20%B)10%;15%C)10%;10%D)8%;10%E)noneoftheaboveAnswer:CDifficulty:ModerateRationale:U=0.10-3/2(0.10)2=8.5%;highestutilityofchoices.Chapter6RiskAversionandCapitalAllocationtoRiskyAssets1159.Tomaximizeherexpectedutility,whichoneofthefollowinginvestmentalternativeswouldshechoose?A)Aportfoliothatpays10percentwitha60percentprobabilityor5percentwith40percentprobability.B)Aportfoliothatpays10percentwith40percentprobabilityor5percentwitha60percentprobability.C)Aportfoliothatpays12percentwith60percentprobabilityor5percentwith40percentprobability.D)Aportfoliothatpays12percentwith40percentprobabilityor5percentwith60percentprobability.E)noneoftheabove.Answer:CDifficulty:DifficultRationale:U(c)=9.02%;highestutilityofpossibilities.10.Aportfoliohasanexpectedrateofreturnof0.15andastandarddeviationof0.15.Therisk-freerateis6percent.Aninvestorhasthefollowingutilityfunction:U=E(r)-(A/2)s2.WhichvalueofAmakesthisinvestorindifferentbetweentheriskyportfolioandtherisk-freeasset?A)5B)6C)7D)8E)noneoftheaboveAnswer:DDifficulty:DifficultRationale:0.06=0.15-A/2(0.15)2;0.06-0.15=-A/2(0.0225);-0.09=-0.01125A;A=8;U=0.15-8/2(0.15)2=6%;U(Rf)=6%.11.Accordingtothemean-variancecriterion,whichoneofthefollowinginvestmentsdominatesallothers?A)E(r)=0.15;