A portfolio manager is revising an equity portfolio with the goal of attaining theoptimal portfolio on the portfolio’s efficient frontier. The manager believes this goalcan be achieved by replacing a stock in the portfolio with a new stock that is not partof the existing portfolio and keeping the portfolio value constant. The managerconsiders the following alternative actions:• Action 1: Sell the stock with the highest marginal VaR and purchase anequivalent value of a new stock that would have the lowest marginal VaR in the portfolio.• Action 2: Sell a particular stock and purchase an equivalent value of a newstock, which would cause the ratio of expected excess returns to portfoliobeta for all stocks in the portfolio to be equal.• Action 3: Sell a particular stock and purchase an equivalent value of a newstock, which would cause the portfolio betas of all stocks in the portfolio to be equal.• Action 4: Sell a particular stock and purchase an equivalent value of a newstock, which would significantly decrease the portfolio standard deviationwithout changing the average excess portfolio return.Which of the actions above would create an optimal portfolio?

A credit analyst is evaluating the liquidity of a small regional bank while preparing a report for a credit committee meeting. With quarterly financial statements, the analyst calculates some relevant liquidity indicators over the past three years. Which of the following trends over this period should the analyst be most concerned about in the credit risk report?

A bank treasurer is seeking to identify the most appropriate investment maturitystrategy to apply considering the status of its balance sheet and the economicconditions it is currently facing. The treasurer gathers the following information:• The bank faces a high interest rate environment with a flat yield curve.• The bank’s asset mix includes a high proportion of US Treasury bondspurchased years ago when interest rates were significantly lower.• The bank has a high proportion of revenues from loans and anticipates arecord high level of profitability this year.Which of the following strategies would be the most appropriate for the bank to takein order to maintain its current level of total income?

Which of the following measures is most likely an example of a dynamic financial correlation measure?

Two financial institutions are facing different funding issues. Bank A, a mid-size regional bank is concerned that it has a shortfall in legal reserves for the day and is seeking an alternative to address this shortfall. Bank B, a small community bank, on the other hand, has recently experienced a much greater than anticipated shortfall in long term certificates of deposit (CD) renewals due to fierce local competition for retail deposits. Bank B has traditionally used stable CDs to fund its home mortgage portfolio. What is the most appropriate funding response of each of these two institutions considering timing and the availability of non-deposit funds?