Essentials Of Investments 8th Edition Chapter 13 Answers
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Selected questions and solutions to CFA questions from Chapter 5 of Essentials of Investments by Bodie, Kane and Marcus, 8th Edition.
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Chapter 5 CFA questions • 1. Essentials of Investments BODIE, KANE, MARCUS, 8TH EDITION Problem + Solution for Chapter 5, CFA questions 2, 3, 7, 8, 9, 11 • CFA Question 2Which of the following statements about the standard deviation is/are true? A standarddeviation: 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 • CFA Question 2 - SolutionWhich of the following statements about the standard deviation is/are true?
A standarddeviation: A- Is the square root of the variance - YES. This is how the standard deviation is calculated. B- Is denominated in the same units as the original data - YES. Standard deviation is plus/minus percentage points, just like E(r) C- Can be a positive or a negative number - No. • CFA Question 3Which of the following statements reflects the importance of asset allocation decision tothe investment process. The asset allocation decision:A- Helps the investor decide on realistic investment goals.B- Identifies specific securities to include in a portfolio.C- Determines most of the portfolio’s returns and volatility over time.D- Creates a standard by which to establish an appropriate investment time horizon. • CFA Question 3 - SolutionWhich of the following statements reflects the importance of asset allocation decision tothe investment process.
The asset allocation decision:A- Helps the investor decide on realistic investment goals.B- Identifies specific securities to include in a portfolio.C- Determines most of the portfolio’s returns and volatility over time. Asset allocationis a process of determining the risk and return profile of a portfolio, based on the riskinterests of the client.D- Creates a standard by which to establish an appropriate investment time horizon. • CFA Question 7 Bear Normal Bull Market Market Market Probability 0.2 0.5 0.3What are the expected returnsfor Stocks X and Y?
Stock X -20 18 50 Stock Y -15 20 10 • CFA Question 7 - Solution Bear Normal Bull Market Market MarketWhat are the expected returnsfor Stocks X and Y?For X=.2(-20) +.5(18)+.3(50)=20% Probability 0.2 0.5 0.3For Y=.2(-15) +.5(20)+.3(10)=10%We calculate this using weighted Stock X -20 18 50averages, based on the probabilitiesprovided. Stock Y -15 20 10 • CFA Question 8 Bear Normal Bull Market Market Market Probability 0.2 0.5 0.3What are the standard deviations onreturns on stocks X and Y?
Stock X -20 18 50 E(r) = 20 Stock Y -15 20 10 E(r)=10 • CFA Question 8First we calculate the variance.