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GE-FEL Investment Management Portfolio Creation

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GE-FEL Investment Management Portfolio Creation

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Questions and Answers

What is the main benefit of combining assets with low positive or negative correlation in a portfolio?

To eliminate all risk from the portfolio
To increase the risk level of the portfolio
To reduce the expected return of the portfolio
To maintain the rate of return while reducing the risk level (correct)

What is the efficient frontier in portfolio theory?

The set of portfolios with the lowest possible risk
The set of portfolios with a fixed rate of return
The envelope curve that encompasses all the best combinations of assets (correct)
The set of portfolios with the highest possible return

How do investors typically select their optimal portfolio?

By selecting the portfolio with the highest expected return
By finding the point of tangency between the efficient frontier and their highest utility curve (correct)
By randomly selecting a portfolio from the efficient frontier
By selecting the portfolio with the lowest possible risk

What is the main difference between the optimal portfolios of different investors?

The point of tangency between the efficient frontier and their highest utility curves (C) Signup and view all the answers

What is the purpose of considering correlation coefficients among assets?

To select assets that fit together based on their correlations (B) Signup and view all the answers

What is the benefit of including foreign stock and bond investments in a portfolio?

To provide superior rates of return compared with U.S. securities (A) Signup and view all the answers

What is the critical factor to consider when selecting investments?

The correlation coefficients among assets (A) Signup and view all the answers

What is the goal of portfolio diversification?

To maintain the rate of return while reducing the risk level (D) Signup and view all the answers

What is the relationship between the efficient frontier and the utility curve?

The utility curve is tangent to the efficient frontier (B) Signup and view all the answers

What is the benefit of understanding portfolio theory in the context of global investing?

It provides a deeper understanding of the benefits of diversification (C) Signup and view all the answers