18 Questions
The standard deviation of the portfolio consisting of only the risk-free asset is zero.
True
The budget line is a downward sloping line, indicating that the expected return on the portfolio decreases with risk.
False
If an investor invests only in risky assets, then the expected return is Rf.
False
The slope of the budget line represents the price of risk.
True
If an investor invests in both risk-free and risky assets, then they expect to earn a return equal to Rf.
False
The risk-free asset has a standard deviation of σm.
False
A risk-averse investor is willing to accept a lower expected income in order to avoid taking a risk.
True
The risk premium is a measure of the degree of risk tolerance.
False
A risk lover is willing to pay to avoid taking a risky outcome.
False
The risk premium is the difference between the expected income of a risky outcome and a certain outcome.
True
The utility curve is a straight line for a risk-averse investor.
False
The risk premium is zero for a risk-neutral investor.
True
A risk-averse person will always accept a lottery with a positive expected value.
False
The expected value of a lottery is the maximum payoff that the lottery will generate.
False
Standard deviation is a measure of the expected return of an investment portfolio.
False
Variance is a measure of the degree of risk aversion of decision makers.
False
Diversification is a way to increase the risk of an investment portfolio.
False
The expected value of a lottery is calculated by subtracting the probability of each outcome from the payoff of each outcome.
False
Test your understanding of portfolio risk and return analysis, including the calculation of standard deviation and expected return. This quiz covers the relationship between portfolio risk and expected return, and the concept of a budget line. Assess your knowledge of risk-free assets, risky assets, and portfolio management.
Make Your Own Quizzes and Flashcards
Convert your notes into interactive study material.
Get started for free
