Portfolio Management - Portfolio Management Section 1

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17. Investor X has a higher risk aversion than investor Y. On the capital allocation line, will investor Y's optimal portfolio have a higher expected return?

  • Option : A
  • Explanation : Investor Y has a low risk aversion coefficient, therefore a high risk tolerance and a higher expected return on the capital allocation line.
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18. The optimal portfolio, as suggested by the mean–variance theory, is determined by every individual investor’s:

  • Option : C
  • Explanation : Each individual investor’s optimal mix of the risk-free asset and the optimal risky asset is determined by the investor’s risk preference.
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19. The IFT Fund has achieved returns of 18%, 15%, and –36% in the past three years, respectively. The fund's geometric mean return for the past three years is closest to:

  • Option : B
  • Explanation : The geometric mean return for the fund for the past three years is calculated as: [(1 + 18%) (1 + 15%) (1 - 36%)]1/3 - 1 = - 0.0459 = - 4.59%.
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20. An investor has achieved a return of 4% over a 10-week period. The investor’s annualized return is closest to:

  • Option : A
  • Explanation : Annualized return is calculated as: (1 + 0.04)52/10 – 1 = 0.2262 = 22.62%.
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