Faculty of Economics and Business
Department of Finance
Exam: Investments
Program: Bachelor program in Economics, period 3.4
Code: 60331090
Date: March 24, 2009
Time: 12:00 – 14:45
Duration: 2 hours and 45 minutes
Exam parts: This exam is composed of 3 parts. Please start part 3 on a new sheet of
paper.
The first part of the exam consists of multiple choice questions.
The second part of the exam consists of open questions from the material
taught by dr. Stefanova.
The third part of the exam consists of open questions from the material
taught by prof. Frijns.
START EACH PART (1,2,3) ON A NEW SHEET!
Scoring: The maximum possible scores for each part and question are indicated. In
total, you can earn 100 points. Your final exam grade is determined by
dividing the number of points by 10.
Case work: Your exam grade will only become valid if you have at least passed 2 out of
the 4 possible cases. Case work is only valid for this academic year.
Grades made known: The grades will be made public at maximum ten working days after the
exam date. If grades are known before that date, this will be communicated
through Blackboard.
Calculators: You are allowed to use a (graphical, financial) calculator.
Inspection: It is possible to inspect your exam paper Monday, April 6, at 11:00. The
room is to be made known via the monitor system. Please bring your own
copy of the exam + answers (downloadable via Blackboard by that time).
Remarks: Be concise and complete in your answers (including calculations). Always
explain your answers, even if not explicitly called for. Use your time
efficiently, using the maximum number of points per question as a
guideline.
Good luck!
1
, PART 1 (MULTIPLE CHOICE; 40 points at maximum)
Read the questions and answers carefully and write down your answer on your answer
sheet. Your final score is determined as (# correct answers ‐ 2) * 40/18. Negative scores
for this part of the exam are set to zero.
1. In the mean‐standard deviation graph, which one of the following statements is true
regarding the indifference curve of a risk‐averse investor?
A. It is the locus of portfolios that have the same expected rates of return and different
standard deviations.
B. It is the locus of portfolios that have the same standard deviations and different rates
of return.
C. It is the locus of portfolios that offer the same utility according to returns and
standard deviations.
D. It connects portfolios that offer increasing utilities according to returns and standard
deviations.
E. none of the above.
Indifference curves plot trade‐off alternatives that provide equal utility to the individual (in
this case, the trade‐offs are the risk‐return characteristics of the portfolios).
2. Which of the following statement(s) is (are) false regarding the selection of a portfolio
from those that lie on the Capital Allocation Line?
A. Less risk‐averse investors will invest more in the risk‐free security and less in the
optimal risky portfolio than more risk‐averse investors.
B. More risk‐averse investors will invest less in the optimal risky portfolio and more in
the risk‐free security than less risk‐averse investors.
C. Investors choose the portfolio that maximizes their expected utility.
D. A and B.
E. A and C.
All rational investors select the portfolio that maximizes their expected utility; for investors
who are relatively more risk‐averse, doing so means investing less in the optimal risky
portfolio and more in the risk‐free asset.
3. Suppose you held a well‐diversified portfolio with a very large number of securities, and
that the single index model holds. If the σ of your portfolio was 0.20 and σM was 0.16,
the β of the portfolio would be approximately ________.
A. 0.64
B. 0.80
C. 1.25
D. 1.56
E. none of the above
2
Department of Finance
Exam: Investments
Program: Bachelor program in Economics, period 3.4
Code: 60331090
Date: March 24, 2009
Time: 12:00 – 14:45
Duration: 2 hours and 45 minutes
Exam parts: This exam is composed of 3 parts. Please start part 3 on a new sheet of
paper.
The first part of the exam consists of multiple choice questions.
The second part of the exam consists of open questions from the material
taught by dr. Stefanova.
The third part of the exam consists of open questions from the material
taught by prof. Frijns.
START EACH PART (1,2,3) ON A NEW SHEET!
Scoring: The maximum possible scores for each part and question are indicated. In
total, you can earn 100 points. Your final exam grade is determined by
dividing the number of points by 10.
Case work: Your exam grade will only become valid if you have at least passed 2 out of
the 4 possible cases. Case work is only valid for this academic year.
Grades made known: The grades will be made public at maximum ten working days after the
exam date. If grades are known before that date, this will be communicated
through Blackboard.
Calculators: You are allowed to use a (graphical, financial) calculator.
Inspection: It is possible to inspect your exam paper Monday, April 6, at 11:00. The
room is to be made known via the monitor system. Please bring your own
copy of the exam + answers (downloadable via Blackboard by that time).
Remarks: Be concise and complete in your answers (including calculations). Always
explain your answers, even if not explicitly called for. Use your time
efficiently, using the maximum number of points per question as a
guideline.
Good luck!
1
, PART 1 (MULTIPLE CHOICE; 40 points at maximum)
Read the questions and answers carefully and write down your answer on your answer
sheet. Your final score is determined as (# correct answers ‐ 2) * 40/18. Negative scores
for this part of the exam are set to zero.
1. In the mean‐standard deviation graph, which one of the following statements is true
regarding the indifference curve of a risk‐averse investor?
A. It is the locus of portfolios that have the same expected rates of return and different
standard deviations.
B. It is the locus of portfolios that have the same standard deviations and different rates
of return.
C. It is the locus of portfolios that offer the same utility according to returns and
standard deviations.
D. It connects portfolios that offer increasing utilities according to returns and standard
deviations.
E. none of the above.
Indifference curves plot trade‐off alternatives that provide equal utility to the individual (in
this case, the trade‐offs are the risk‐return characteristics of the portfolios).
2. Which of the following statement(s) is (are) false regarding the selection of a portfolio
from those that lie on the Capital Allocation Line?
A. Less risk‐averse investors will invest more in the risk‐free security and less in the
optimal risky portfolio than more risk‐averse investors.
B. More risk‐averse investors will invest less in the optimal risky portfolio and more in
the risk‐free security than less risk‐averse investors.
C. Investors choose the portfolio that maximizes their expected utility.
D. A and B.
E. A and C.
All rational investors select the portfolio that maximizes their expected utility; for investors
who are relatively more risk‐averse, doing so means investing less in the optimal risky
portfolio and more in the risk‐free asset.
3. Suppose you held a well‐diversified portfolio with a very large number of securities, and
that the single index model holds. If the σ of your portfolio was 0.20 and σM was 0.16,
the β of the portfolio would be approximately ________.
A. 0.64
B. 0.80
C. 1.25
D. 1.56
E. none of the above
2
