CFA一级模考

CFA一级模考题

1 . The most appropriate measure of the increase in the purchasing power of a portfolio’s value

over a given span of time is a(n):

A) after-tax return.

B) real return.

C) holding period return.

B was correct!

A real return is adjusted for the effects of inflation and is used to measure the increase in purchasing power over time.

2 . Which of the following statements about the capital market line (CML) is least accurate?

A) The market portfolio lies on the CML and has only unsystematic risk.

B) Investors choose a portfolio on the CML by varying their weightings of the risk-free asset

and the market portfolio.

C) The CML will not be a linear relationship if investors' borrowing and lending rates are not

equal.

A was correct!

The first part of this statement is true - the market portfolio does lie on the CML. However, the market portfolio is well diversified and thus has no unsystematic risk. The risk that remains is market risk, or nondiversifiable, or systematic risk.

The CML measures standard deviation (or total risk) against returns. The CML will “kink” if the borrowing rate and lending rate are not equal. Investors choose a portfolio on the CML by lending or borrowing at the risk-free rate to vary the weighting of their investments in the risk-free asset and the market portfolio.

3 . Stock A has a standard deviation of 10%. Stock B has a standard deviation of 15%. The

covariance between A and B is 0.0105. The correlation between A and B is:

A) 0.55.

B) 0.70.

C) 0.25.

B was correct!

CovA,B = (rA,B)(SDA)(SDB), where r = correlation coefficient and SDx = standard deviation of stock x

Then, (rA,B) = CovA,B / (SDA × SDB) = 0.0105 / (0.10 × 0.15) = 0.700

4 . A portfolio to the right of the market portfolio on the capital market line (CML) is created by:

A) holding both the risk-free asset and the market portfolio.

B) holding more than 100% of the risky asset.

C) fully diversifying.

B was correct!

Portfolios that lie to the right of the market portfolio on the capital market line are created by borrowing funds to own more than 100% of the market portfolio (M).

The statement, "holding both the risk-free asset and the market portfolio" refers to portfolios that lie to the left of the market portfolio. Portfolios that lie to the left of point M are created by lending funds (or buying the risk free-asset). These investors own less than 100% of both the market portfolio and more than 100% of the risk-free asset. The portfolio at point Rf (intersection of the CML and the y-axis) is created by holding 100% of the risk-free asset. The statement, "fully diversifying" is incorrect because the market portfolio is fully diversified.

5 . A return objective is said to be relative if the objective is:

A) stated in terms of probability.

B) compared to a specific numerical outcome.

C) based on a benchmark index or portfolio.

C was correct!

Relative return objectives are stated relative to specified benchmarks, such as LIBOR or the return on a stock index. Absolute return objectives are stated in terms of specific numerical outcomes, such as a 5% return. Risk objectives (either absolute or relative) may be stated in terms of probability, such as “no more than a 5% probability of a negative return.”