1.
A portfolio with zero correlation between its assets is:
A
Perfectly diversified
B
Highly risky
C
Undiversifiable
D
Highly correlated
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A portfolio with zero correlation between its assets is:
Perfectly diversified
Highly risky
Undiversifiable
Highly correlated
What does the Sharpe Ratio measure?
Risk-adjusted return
Total risk
Return without risk
Volatility of returns
Which of the following is true for a risk-free asset?
It offers no return
It offers a fixed return
Its return varies based on the market
It is subject to market volatility
The risk that affects the entire market is known as:
Diversifiable risk
Non-diversifiable risk
Specific risk
Idiosyncratic risk
Which of the following best defines "beta" in the Capital Asset Pricing Model (CAPM)?
Measure of a stock's volatility
Measure of systematic risk
Measure of total risk
Measure of expected return
Which of the following does NOT affect the required return of an asset?
Inflation rate
Time horizon
The asset's correlation with the market
The investor's risk tolerance
What does a high standard deviation in a stock's return indicate?
Lower risk
Higher risk
No risk
Moderate risk
What does the term "alpha" in investing refer to?
The measure of portfolio return above the market return
The level of systematic risk
The diversification of a portfolio
The risk-free rate
Which of the following is true about a risk-averse investor?
They prefer higher returns with no risk
They prefer portfolios with lower risk and moderate return
They prefer portfolios with high risk
They are indifferent to risk
What does a higher standard deviation in an asset's returns indicate?
Higher predictability of returns
Greater uncertainty or risk
No change in risk
Lower return volatility
Which of the following is the primary factor that affects the total return of an asset?
The risk-free rate
The asset's expected volatility
The asset's expected market return
The correlation with other assets
What does the risk-free rate typically represent in financial theory?
Return on government bonds
Return on risky assets
Return on equity
Return on a diversified portfolio
Which of the following risks can be reduced through diversification?
Systematic risk
Unsystematic risk
Both A and B
Neither A nor B
The CAPM assumes that all investors have:
Different risk preferences
The same risk preferences
No risk preferences
A diversified portfolio
Which of the following is an example of a non-diversifiable risk?
Company-specific risk
Risk from inflation
Risk from diversification
Risk due to corporate management
Which of the following best describes "diversification"?
Investing in a single asset
Investing in similar types of assets
Spreading investments across multiple assets
Investing only in safe assets
What is the expected return of a portfolio?
A weighted average of the returns of its assets
The return on the risk-free asset
The return of the market portfolio
The return on the least risky asset
Which of the following is an example of systematic risk?
Risk due to changes in interest rates
Risk of a company's management
Risk due to natural disasters
Risk specific to a single stock
The efficient frontier is a graphical representation of:
The highest return possible
A portfolio's expected risk and return
The lowest possible risk
The return on the market portfolio
Which of the following is NOT a method of measuring portfolio risk?
Standard deviation
Beta
Capital gain tax
Correlation coefficient