BNKF5001 Risk & Return 3

A financial portfolio is a collection of:

• Art works

• Assets (usually financial)

• Assets (usually real)

• Bonds

Diversification is the process of:

• spreading your funds over a range of investments in order to reduce risk.

• reducing the variability of investments so that all investments will perform well at the same time.

• finding assets that are not perfectly correlated with each other.

• A and C only.

The risk-return line:

• always has a positive slope and commences above the origin.

• always has a positive slope and commences at the risk-free rate.

• shows the risk associated with an investment and the returns it should provide.

• All of the above.

The annual returns for Genray Ltd are reproduced below:

Year Genray Ltd (%)

20X2 -4

20X3 8

20X4 11

20X5 3

20X6 -8

• 6.8%

• 2.0%

• 8.5%

• 2.5%

The _____________ the standard deviation, the ____________ the investment.

• smaller, larger the expected return on

• larger, riskier

• smaller, riskier

• larger, smaller the expected return on

In a portfolio with $5,000 invested in Genray Ltd and $15,000 invested in Terrafirma Inc, the portfolio weightings respectively are:

• 75% and 25%

• 5% and 15%

• 50% and 50%

• 25% and 75%

The average annual returns for Genray Ltd and Terrafirma Inc are 10%p.a. and 15%p.a. respectively. Assuming a portfolio with 50% in Genray and 50% in Terrafirma, the overall expected portfolio return should be:

• 10%

• 12.5%

• 13.5%

• 15%

The average annual returns for Genray Ltd and Terrafirma Inc are 10%p.a. and 15%p.a. respectively. Assuming a portfolio with 40% in Genray and 60% in Terrafirma, the overall expected portfolio return should be:

• 10%

• 12%

• 13%

• 40%

The longer the investment horizon, generally the ____________ the tolerance to risk.

• greater

• lesser

• longer

• shorter

A stock has had an average return of 9%p.a. and a standard deviation of 5%p.a. over the last 10 years. Which of the following is true?

• If we invest $100 today, we will have $109 in a year's time.

• If we invest $100 today, we could lose up to $5 over the next year.

• If we invest $100 today, we expect to have $109 in a year's time but this could be more or less.

• If we invest $100 today, we expect to have $105 in a year's time but this could be more or less.