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You choose to construct a portfolio from the Stock A, Stock B, and the risk-free investment. You make the following estimates of the three: Estimates of Alpha, Beta, and Firm-Specific Risk   Alpha Beta Firm-Specific Std Dev Stock A 1.50% 1.40 80.00% Stock B 1.75% 1.80 90.00% Risk-Free Investment 0.00% 0.00 0.00% You invest 30% of your portfolio in Stock A, 30% in Stock B, and the remaining 40% in the risk-free investment. What is your portfolio’s firm-specific risk (standard deviation)?  

With the Treynor-Black method, we have to normalize our active portfolio security’s initial positions. Why?

You are using the Treynor-Black method to build an optimal risky portfolio. The entire universe of mispriced securities is Stocks A, B, and C. You estimate the following input list for the three: Input List of Investable Universe   Stock A Stock B Stock C Alpha 1.0% -0.5% 0.9% Firm-Specific Risk 60% 50% 40% Beta 1.3 1.5 0.8 What is the initial position in the active portfolio for Stock C?

Using historical data, you estimate a security’s beta is 1.250. For your forecasted returns, you use the adjusted beta approach. What is your forecasted beta?

In the context of the single-factor model, which of the following is a cyclical stock?

The indifference curves above show us that Alya’s indifferent between having (15 slices of pizza, 5 cans of coke) and

Suppose that the price of a can of coke increases from $2 to $4, income is $40 and price of a slice of pizza is $2. Alya’s budget constraint is given in the graph above and you will need to identify the correct one. The new optimal consumption bundle is given by ___,

The above graph illustrates the supply and demand for widgets in Econland, where instead Widgets can be obtained in world markets at a price PWorld = R as illustrated.  Suppose initially Econland is in autarky.  Then it opens to free trade with the rest of the world.

A monopolist faces the market environment illustrated below. Use the following graph to answer questions 34 – 37.

Relative to autarky, free trade results in a change in Econland domestic consumer surplus equal to