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Questions and Answers
A company is deciding between investing in Project A with an expected return of 15% and a standard deviation of 8%, or Project B with an expected return of 20% and a standard deviation of 12%. Which project presents a better risk-adjusted return?
A company is deciding between investing in Project A with an expected return of 15% and a standard deviation of 8%, or Project B with an expected return of 20% and a standard deviation of 12%. Which project presents a better risk-adjusted return?
- Project A, because it has a lower standard deviation.
- Project B, because its Sharpe ratio is higher. (correct)
- Project B, because it has a higher expected return.
- Project A, because its Sharpe ratio is higher.
An investor holds a portfolio consisting of stocks, bonds, and real estate. How would they calculate the overall portfolio return?
An investor holds a portfolio consisting of stocks, bonds, and real estate. How would they calculate the overall portfolio return?
- Simple average of the returns of each asset class.
- Weighted average of the returns of each asset class, based on the proportion of the portfolio invested in each. (correct)
- The return of the best-performing asset class.
- The return of the worst-performing asset class.
What does a beta of 1.5 suggest about a stock's systematic risk?
What does a beta of 1.5 suggest about a stock's systematic risk?
- The stock is 50% more volatile than the market. (correct)
- The stock is equally as volatile as the market.
- The stock is 50% less volatile than the market.
- The stock's volatility is unrelated to the stock market.
What is the primary difference between systematic and unsystematic risk?
What is the primary difference between systematic and unsystematic risk?
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An investor is considering adding a new asset to their portfolio in order to improve diversification. Ideally, this new asset should have what kind of correlation with the existing portfolio?
An investor is considering adding a new asset to their portfolio in order to improve diversification. Ideally, this new asset should have what kind of correlation with the existing portfolio?
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