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Q. Which of the following is the best reason for an investor to be concerned with the composition of a portfolio?

• A. Risk reduction.
• B. Downside risk protection.
• C. Avoidance of investment disasters.

Q. Evidence of risk aversion is best illustrated by a risk–return relationship that is:

• A. negative.
• B. neutral.
• C. positive.

Two investors have utility functions that differ only with regard to the coefficient of risk aversion. Relative to the investor with a higher coefficient of risk aversion, the optimal portfolio for the investor with a lower coefficient of risk aversion will most likely have:

• A. a lower level of risk and return.
• B. a higher level of risk and return.
• C. the same level of risk and return.

• A. lower.
• B. the same.
• C. higher.

Q. Which of the following pooled investments is most likely characterized by a few large investments?

• A. Hedge funds.
• B. Buyout funds.
• C. Venture capital funds.

Q. As the number of assets in an equally-weighted portfolio increases, the contribution of each individual asset’s variance to the volatility of the portfolio:

• A. increases.
• B. decreases.
• C. remains the same.

• A. 10.7%.
• B. 11.3%.
• C. 12.1%.

Q. A defined benefit plan with a large number of retirees is likely to have a high need for:

• A. income.
• B. liquidity.
• C. insurance.

Q. With respect to the mean–variance portfolio theory, the capital allocation line, CAL, is the combination of the risk-free asset and a portfolio of all:

• A. risky assets.
• B. equity securities.
• C. feasible investments.

Security analysis is most likely a part of which step in the portfolio management process?

• A. The feedback step
• B. The execution step
• C. The planning step