Mastering Portfolio Optimization
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Questions and Answers

According to portfolio theory, a risk averse investor prefers lower returns with known risks rather than higher returns with unknown risks.

  • True (correct)
  • False

    • What is the alternative definition of risk mentioned in the text?

  • The uncertainty of future outcomes
  • The probability of an adverse outcome (correct)
  • The relationship among investments
  • The combination of risk and return

    • What is the relationship between risk and return in creating an optimum investment portfolio?

  • Risk and return are not related
  • Higher risk leads to higher return
  • Lower risk leads to higher return (correct)
  • Risk and return should be balanced

    • Are all investors considered to be risk averse according to the text?

    <p>No</p> Signup and view all the answers

    What is the definition of risk in most financial literature?

    <p>The uncertainty of future outcomes</p> Signup and view all the answers

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