Financial Analytics: Monte Carlo Simulation, CAPM, and Portfolio Management
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Questions and Answers

What is the primary purpose of a Monte Carlo simulation in financial analytics?

  • To calculate the value-at-risk of a cryptocurrency investment
  • To optimize the weightings of a diversified portfolio
  • To estimate the expected return of a portfolio using the Capital Asset Pricing Model (CAPM)
  • To generate random scenarios for sensitivity analysis of a portfolio (correct)

    • According to the Capital Asset Pricing Model (CAPM), what is the expected return of a portfolio?

  • The sum of the expected returns of individual assets
  • The weighted average of the expected returns of individual assets (correct)
  • The risk-free rate plus the market risk premium
  • The beta of the portfolio times the market return

    • In a cryptocurrency portfolio, what is the primary benefit of diversification?

  • Reducing the risk of the portfolio by offsetting losses (correct)
  • Reducing the expected return of the portfolio
  • Increasing the liquidity of the portfolio
  • Increasing the volatility of the portfolio

    • What is the primary assumption of the Capital Asset Pricing Model (CAPM) regarding investor behavior?

    <p>Investors are risk-averse and demand a higher return for taking on more risk</p> Signup and view all the answers

    What is the role of beta in the Capital Asset Pricing Model (CAPM)?

    <p>A measure of the systematic risk of an individual asset</p> Signup and view all the answers

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