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Modern Portfolio Theory Assumptions

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Questions and Answers

Which assumption relates to investors preferring portfolios with higher expected returns for a given level of risk?

Investors are risk-neutral.

Investors have no preference between risk and returns.

Investors are rational and risk-averse. (correct)

Investors are influenced by market trends.

What assumption is made regarding investor access to information in modern portfolio theory?

Investors are unaware of risk factors.

Investors have full and symmetric information. (correct)

Investors rely solely on historical data.

Investors can predict market movements accurately.

In modern portfolio theory, investors are believed to construct their portfolios based on which of the following assumptions?

Investors invest based on emotional biases.

Investors use mean-variance optimization. (correct)

Investors do not diversify their assets.

Investors aim for maximum variance in their portfolios.

Which of the following assumptions assumes that investors do not view risk in isolation?

<p>Investors consider the correlation between asset returns.</p> Signup and view all the answers

What assumption does modern portfolio theory make regarding investors' risk preferences over time?

<p>Investors’ risk preferences may change based on their financial goals.</p> Signup and view all the answers

Modern Portfolio Theory Assumptions

Choose a study mode

Podcast

Questions and Answers

Which assumption relates to investors preferring portfolios with higher expected returns for a given level of risk?

What assumption is made regarding investor access to information in modern portfolio theory?

In modern portfolio theory, investors are believed to construct their portfolios based on which of the following assumptions?

Which of the following assumptions assumes that investors do not view risk in isolation?

What assumption does modern portfolio theory make regarding investors' risk preferences over time?

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