Asset Pricing Models Quiz
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Questions and Answers

What is the main measure of portfolio risk according to Markowitz Theory?

  • Covariance of the rate of return
  • Standard deviation of the rate of return
  • Expected rate of return
  • Variance of the rate of return (correct)

    • What did Harry Markowitz derive for computing the variance of a portfolio?

  • A formula for computing the covariance of the rate of return
  • A formula for computing the standard deviation of the rate of return
  • A formula for computing the expected rate of return
  • A formula for computing the variance of a portfolio (correct)

    • What is the objective of investors according to Markowitz Theory?

  • Maximize the standard deviation of the rate of return
  • Maximize the utility of terminal wealth at the end of specified period (correct)
  • Maximize the expected rate of return
  • Minimize the variance of the rate of return

    • Which measure did Markowitz show as important for effectively diversifying investments?

    <p>$ ho$ (Correlation coefficient) (A)</p> Signup and view all the answers

    What did Markowitz indicate as important for reducing the total risk of a portfolio?

    <p>$ ho$ (Correlation coefficient) (D)</p> Signup and view all the answers

    Financial risk management refers to the identification, analysis, and treatment of speculative financial ______

    <p>risks</p> Signup and view all the answers

    Producers and users of commodities face ______ price risk

    <p>commodity</p> Signup and view all the answers

    At harvest, the price of the commodity may have increased or decreased, depending on the supply and demand for ______

    <p>grain</p> Signup and view all the answers

    Commodity Price Risk is the losing of money if the price of commodity ______

    <p>changes</p> Signup and view all the answers

    Business firms face a number of speculative financial ______

    <p>risks</p> Signup and view all the answers

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