Question

1The normal probability distribution of possible return (b) considers only down-side risk. (b) ignores up-side risk. (c) ignores down-side risk. (d) considers only up-side risk. (e) assumes symmetric risk. 35. A positive covariance between two stocks' returns means (a) both returns have positive standard deviations. (b) both have positive expected returns. (c) the two returns tend to move together. (d) the two returns tend to move in opposite directions. (e) there is no relationship between the two stocks' returns. 36. The returns of two securities have a strong positive relationship. The correlation coefficient would be (a) - 0.8. (b) 1.4. (c) 2.0. (d) 0.9. 37. If there is no relationship between the returns of two stocks, the covariance would be (a) a small, negative number. (b) zero. (c) a large, positive number. (d) a small, positive number. 38. The correlation of the returns for Stock A with itself would be (a) - 1. (b) 2. (c) 1. (d) 0. 39. A portfolio consists of 40% in Security A and 60% in Security B. The covariance matrix for A is 144, 225; for B is 225, 81. The standard deviation for the portfolio is (a) 11.2. (b) 12. (c) 14.9. (d) 12.7. (e) 10. 40. Security A is riskier than Security B (a) Covariance (A, B) must be positive. (b) Standard Deviation (B) will be larger than Standard Deviation (A). (c) You must have larger proportion of B in your portfolio. (d) Covariance (A, B) will be greater than Covariance (B, A). (e) Covariance (A, B) = Covariance (B, A). 41. Dividing Covariance (A, B) by the product of the Standard Deviations of A and of B gives (a) Expected Return of the portfolio. (b) Correlation Coefficient (A, B). (c) Variance of the portfolio. (d) Covariance (B, A).