introduction portfolio management

1. The goal of an efficient portfolio is to ________.

Answer: D

• achieve a predetermined rate of return for a given level of risk

• maximize risk in order to maximize profit

• minimize profit in order to minimize risk

• minimize risk for a given level of return

Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________.

• negatively; -1; positively; +1

• negatively; +1; positively; -1

• positively; -1; negatively; +1

• positively; +1; negatively; -1

Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk.

• a higher; a lower

• the same; a higher

• the same; a lower

• a lower; a higher

Year Return Asset A Return Asset B

1 6% 8%

2 7% 7%

3 8% . 6%

The correlation of returns between Asset A and Asset B can be characterized as ________.

• perfectly positively correlated

• perfectly negatively correlated

• uncorrelated

• partially correlated

Year Return Asset A Return Asset B Return Asset C

1 6% 8% 5%

2 7% 7% 6%

3 8% 6% 7%

If you were to create a portfolio designed to reduce risk by investing equal proportions in each of two different assets, which portfolio would you recommend?

• Assets A and B

• Assets A and C

• none of the available combinations

• cannot be determined

If a person's required return does not change when risk increases, that person is said to be

• risk-seeking.

• risk-neutral.

• risk-averse.

• risk-aware.

________ is the chance of loss or the variability of returns associated with a given asset.

• Return

• Value

• Risk

• Probability

The ________ of an asset is the change in value plus any cash distributions expressed as a percentage of the initial price or amount invested.

• Return

• Value

• Risk

• Probability

Risk aversion is the behavior exhibited by managers who require a (n)

• increase in return, for a given decrease in risk

• increase in return, for a given increase in risk

• decrease in return, for a given increase in risk.

• decrease in return, for a given decrease in risk.

The ________ is a measure of relative dispersion used in comparing the risk of assets with differing expected returns.

• coefficient of variation

• chi square

• mean

• standard deviation