How can individuals who manage their own portfolios reconcile some of the most useful aspects of traditional portfolio management and modern portfolio theory?
What will be an ideal response?
Answer: Students should include these key points:
Investors should carefully consider how much risk they are willing to bear when seeking higher returns.
They should diversify across industry lines, not necessarily limiting themselves to well-known or U.S. based companies.
While some aspects of modern portfolio theory might require mathematical training and computing power beyond the reach of most individual investors, they should pay attention to the betas of assets within their portfolio and their effect on the overall portfolio beta.
They should evaluate alternative portfolios and keep choices in line with their desired level of risk.
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Southern Manufacturing applies overhead to its products based on direct labor hours. During 2011 the company allocated overhead using a predetermined overhead rate of $5.25. At the end of 2011 it was determined that overhead was underapplied by $10,000. Which of the following could not be a possible reason for overhead being underapplied?
A) Estimated overhead costs differed from actual overhead costs. B) Estimated direct labor hours differed from actual direct labor hours. C) The cost driver does not have enough correlation with overhead costs. D) Applied overhead was higher than actual overhead.
Investments in property and equipment are ________ predictable than investments in acquisitions, which tend to be ________ opportunistic
A) more; less B) more; more C) less; more D) less; less
Firms would need to hold zero cash for transaction purposes if all outgoing cash transactions could be:
A) greater than total cash inflows. B) less than total cash inflows. C) separated from all incoming transactions. D) perfectly synchronized with cash inflows. E) performed electronically.