Optimal Portfolio and Selection Strategies

<p>Net Present Value Method (A)</p> Signup and view all the answers

<p>The project is acceptable. (C)</p> Signup and view all the answers

<p>Future cash flows and interest rates (A)</p> Signup and view all the answers

<p>It is a traditional technique used to evaluate investments. (A)</p> Signup and view all the answers

<p>To determine investment value and guide capital budgeting (B)</p> Signup and view all the answers

<p>To match the investor's needs by balancing risk and potential returns. (A)</p> Signup and view all the answers

<p>The best possible returns for a given level of risk. (C)</p> Signup and view all the answers

<p>Using the Markowitz portfolio selection model. (C)</p> Signup and view all the answers

<p>It can help move portfolios toward the efficient frontier. (B)</p> Signup and view all the answers

<p>To adjust the portfolio in response to market conditions. (C)</p> Signup and view all the answers

<p>Portfolios that provide the lowest risk for a given level of return. (B)</p> Signup and view all the answers

<p>The relationship between expected returns and risk. (A)</p> Signup and view all the answers

<p>The portfolio with the smallest risk in the efficient set. (C)</p> Signup and view all the answers

<p>Higher risk correlates with higher return. (A)</p> Signup and view all the answers

<p>Systematic risk (C)</p> Signup and view all the answers

<p>Non-systematic risk (D)</p> Signup and view all the answers

<p>6% (B)</p> Signup and view all the answers

<p>Add the risk-free rate to the product of beta and the excess market return. (C)</p> Signup and view all the answers

<p>11% (B)</p> Signup and view all the answers

<p>40% (D)</p> Signup and view all the answers

<p>8.6% (D)</p> Signup and view all the answers

A collection of assets designed to meet an investor's financial goals while balancing risk and potential returns.

A curve representing the best possible returns for a given level of risk or the lowest risk for a given level of return.

Spreading investments across different asset classes to reduce overall portfolio risk.

Adjusting a portfolio's asset allocation to maintain the desired risk level.

Economic and market trends that influence investment returns.

A mathematical model used to identify optimal combinations of assets for a portfolio.

A subset of portfolios on the efficient frontier that offer the best risk-return trade-off for a given level of risk.

The portfolio within the efficient set that has the lowest overall risk.

The anticipated return from an investment, calculated as a percentage of the initial investment.

A model that calculates the expected return of an asset based on its systematic risk (beta), the risk-free rate of return, and the market risk premium.

The anticipated return of a group of investments (portfolio), calculated as the weighted average of the expected returns of the individual investments.

A valuation method that estimates the present value of an investment based on its projected future cash flows.

The difference between the present value of an investment's cash inflows and the present value of its cash outflows.

An investment with a positive NPV is considered profitable, as the present value of the inflows exceeds the present value of the outflows.

An investment with a zero NPV is considered break-even, as the present value of the inflows equals the present value of the outflows.

An investment with a negative NPV is considered unprofitable, as the present value of the outflows exceeds the present value of the inflows.

Risk associated with economy-wide events that affects all securities. It's the variability in a security's return that's directly linked to overall market fluctuations.

Risk specific to a particular security or company that's not related to overall market movements. It's the variability in a security's return that's isolated to that specific investment.

The Capital Asset Pricing Model (CAPM) is a financial model that calculates the expected return of an asset based on its systematic risk (beta) and the risk-free rate of return.

A measure of a security's volatility relative to the overall market. A beta of 1 indicates that the security's price moves in line with the market, while a beta greater than 1 means it's more volatile, and less than 1 means less volatile.

The anticipated return of an investment based on its risk and the market's expectations. It's a theoretical return calculated using the CAPM.

The return on an investment considered to be risk-free, such as US Treasury bonds. It's used as a baseline for calculating returns.

The anticipated return of the overall market, often represented by a broad market index like the S&P 500.

The proportion of an individual asset's value relative to the total value of the portfolio. It's used to calculate the weighted average return of the entire portfolio.