Investment Portfolio Quiz

What is a portfolio?

• A type of stock market index.

• A single investment in a company.

• A financial statement.

• A collection of investments assembled to meet one or more investment goals.

What does an efficient portfolio provide?

• The lowest return for a given risk level.

• The highest return for a given risk level.

• The average return for a given risk level.

• No return for a given risk level.

What happens when the correlation between assets in a portfolio is +1?

• The portfolio's risk is minimized.

• The portfolio has no risk at all.

• The portfolio's risk is maximized.

• The portfolio merely averages the risk of the assets.

What is the benefit of international diversification?

• Higher risk than U.S.-only based investing.

• Less diverse investment alternatives than U.S.-only based investing.

• More diverse investment alternatives than U.S.-only based investing.

• Higher transaction costs.

What is a Yankee bond?

• A bond issued by a U.S. company in a foreign market.

• A bond issued by a multinational corporation.

• A bond issued by the U.S. government.

• A bond issued in the U.S. bond market by a foreign entity.

What is undiversifiable risk also known as?

• Industry-specific risk.

• Company-specific risk.

• Unsystematic risk.

• Systematic risk.

What does a beta of 1.5 indicate?

• The stock has no risk.

• The stock is equally risky as the market.

• The stock is more risky than the market.

• The stock is less risky than the market.

What does the Security Market Line (SML) show?

• The risk-free rate of return.

• The historical return of a security.

• The average market return.

• The expected return for any security given its beta.

What is the primary method companies use to determine the required rate of return on their stock?

• Dividend Discount Model.

• Capital Asset Pricing Model (CAPM).

• Gordon Growth Model.

• Arbitrage Pricing Theory.

What does traditional portfolio management emphasize?

• Reducing correlations between securities.

• Security selection and diversification across industry lines.

• Investing only in high-risk securities.

• Investing only in low-risk securities.