CPWA Portfolio Management
Beta measures - answer the expected move in a stock relative to movements in the
overall market. A beta greater than 1.0 suggests that the stock is more volatile than the
broader market, and a beta less than 1.0 indicates a stock with lower volatility.J
Real return of an investment - answerwhat is earned on an investment after accounting
for taxes and inflation. Real returns are lower than nominal returns, which do not
subtract taxes and inflation.
Real return formula - answerThe real rate of return formula is: (1+NominalRate) ÷
(1+InflationRate)-1. This
Calculate the real return of an investment that had a gross (nominal) return of 9.3%
during a period that experienced 2.8% inflation. - answer6.32
Which term is used to identify the average return of stocks minus the average return on
T-Bills? - answerequity premium
Each of the following arguably helped drive stock prices significantly higher between
1995-2000. This can occur at or near market tops and in pricing bubbles.
I. increase in expected future cash flowsII. fall in the discount rateIII. rise in the risk
premiumIV. fall in the real interest rate - answerI, II, and IV only
What are the three steps to the basic asset allocation problem in traditional portfolio
theory? - answerMake forecasts about the assets2. Decide the feasible set of
investments available to us(i.e., by varying our fraction of wealth w we invest ineach)3.
From the set of all feasible options, choose the onethat maximizes our utility (makes us
happiest)-
Criticism of MPT - answerChallenging MPT Assumptions
Inputs are measured with (a lot of) error
Asset correlations are not fixed
Investors are not exclusively risk-averse
Risk is not known and constant
Investors cannot always borrow and lend risklessly forfree
Taxes and transactions costs are real
Investments, Bodie Kane Marcus31
Which of the following factors make up the original Fama French model? -
answermarket, size (small preferred to large), and value
Beta measures - answer the expected move in a stock relative to movements in the
overall market. A beta greater than 1.0 suggests that the stock is more volatile than the
broader market, and a beta less than 1.0 indicates a stock with lower volatility.J
Real return of an investment - answerwhat is earned on an investment after accounting
for taxes and inflation. Real returns are lower than nominal returns, which do not
subtract taxes and inflation.
Real return formula - answerThe real rate of return formula is: (1+NominalRate) ÷
(1+InflationRate)-1. This
Calculate the real return of an investment that had a gross (nominal) return of 9.3%
during a period that experienced 2.8% inflation. - answer6.32
Which term is used to identify the average return of stocks minus the average return on
T-Bills? - answerequity premium
Each of the following arguably helped drive stock prices significantly higher between
1995-2000. This can occur at or near market tops and in pricing bubbles.
I. increase in expected future cash flowsII. fall in the discount rateIII. rise in the risk
premiumIV. fall in the real interest rate - answerI, II, and IV only
What are the three steps to the basic asset allocation problem in traditional portfolio
theory? - answerMake forecasts about the assets2. Decide the feasible set of
investments available to us(i.e., by varying our fraction of wealth w we invest ineach)3.
From the set of all feasible options, choose the onethat maximizes our utility (makes us
happiest)-
Criticism of MPT - answerChallenging MPT Assumptions
Inputs are measured with (a lot of) error
Asset correlations are not fixed
Investors are not exclusively risk-averse
Risk is not known and constant
Investors cannot always borrow and lend risklessly forfree
Taxes and transactions costs are real
Investments, Bodie Kane Marcus31
Which of the following factors make up the original Fama French model? -
answermarket, size (small preferred to large), and value
