Investments 9Th Canadian Edition By Bodie – Test Bank

Investments 9Th Canadian Edition By Bodie – Test Bank

Chapter 08
Index Models

Multiple Choice Questions

1. As diversification increases, the total variance of a portfolio approaches
A. 0.
B. 1.
C. the variance of the market portfolio.
D. infinity.
E. None of the options are correct.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 08-01 A Single-Factor Security Market.
Topic: 08-01 A Single-Factor Security Market

2. As diversification increases, the standard deviation of a portfolio approaches
A. 0.
B. 1.
C. infinity.
D. the standard deviation of the market portfolio.
E. None of the options are correct.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 08-01 A Single-Factor Security Market.
Topic: 08-01 A Single-Factor Security Market

3. As diversification increases, the firm-specific risk of a portfolio approaches
A. 0.
B. 1.
C. infinity.
D. (n – 1)  n.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 08-01 A Single-Factor Security Market.
Topic: 08-01 A Single-Factor Security Market

4. As diversification increases, the unsystematic risk of a portfolio approaches
A. 1.
B. 0.
C. infinity.
D. (n – 1)  n.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 08-01 A Single-Factor Security Market.
Topic: 08-01 A Single-Factor Security Market

5. As diversification increases, the unique risk of a portfolio approaches
A. 1.
B. 0.
C. infinity.
D. (n – 1)  n.

Accessibility: Keyboard Navigation
Blooms: Understand
Difficulty: Easy
Learning Objective: 08-01 A Single-Factor Security Market.
Topic: 08-01 A Single-Factor Security Market

6. The index model was first suggested by
A. Graham.
B. Markowitz.
C. Miller.
D. Sharpe.
E. Fisher.
William Sharpe, building on the work of Harry Markowitz, developed the index model.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 08-02 The Single-Index Model.
Topic: 08-02 The Input List of the Markowitz Model

7. A single-index model uses __________ as a proxy for the systematic risk factor.
A. a market index, such as the S&P 500
B. the current account deficit
C. the growth rate in GNP
D. the unemployment rate.
E. Interest rate.

Accessibility: Keyboard Navigation
Blooms: Remember
Difficulty: Easy
Learning Objective: 08-02 The Single-Index Model.
Topic: 08-02 The Input List of the Markowitz Model