Chapter 2: Q8B (page 284)
Question: All of the following actions are consistent with feelings of regret except:
a. Selling losers quickly.
b. Hiring a full-service broker.
c. Holding on to losers too long
Answer
a. Selling losers quickly
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Assume that a company announces an unexpectedly large cash dividend to its shareholders. In an efficient market without information leakage, one might expect:
a. An abnormal price change at the announcement.
b. An abnormal price increase before the announcement.
c. An abnormal price decrease after the announcement.
d. No abnormal price change before or after the announcement.
Which of the following statements about the standard deviation is/are true? A standard deviation:
a. Is the square root of the variance.
b. Is denominated in the same units as the original data.
c. Can be a positive or a negative number.
Assume that both X and Y are well-diversified portfolios and the risk-free rate is 8%.
Portfolio | Expected Return | Beta |
X Y | 16% 12% | 1.00 0.25 |
In this situation you could conclude that portfolios X and Y:
a. Are in equilibrium.
b. Offer an arbitrage opportunity.
c. Are both under priced.
d. Are both fairly priced.
“Highly variable stock prices suggest that the market does not know how to price stocks.” Respond.
Use the following data in answering CFA Questions:
Investor “satisfaction” with portfolio increases with expected return and decreases with variance according to the “utility” formula: U = E(r) - ½ Aσ2where A = 4.
Question: Based on the formula above, which investment would you select if you were risk neutral?
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