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Questions and Answers
What is a basic assumption of portfolio theory?
What is a basic assumption of portfolio theory?
- Investors want to maximize returns for a given level of risk (correct)
- Investors are indifferent to returns for a given level of risk
- Investors want to minimize returns for a given level of risk
- Investors want to maximize risk for a given level of returns
What should a portfolio include according to the assumptions of portfolio theory?
What should a portfolio include according to the assumptions of portfolio theory?
- Only marketable securities and real estate
- Only marketable securities
- Only marketable securities and precious metals
- All assets and liabilities (correct)
Why should the full spectrum of investments be considered in a portfolio?
Why should the full spectrum of investments be considered in a portfolio?
- Because it's a common industry practice
- Because the returns from all investments interact (correct)
- Because it's easier to manage
- Because it's a regulatory requirement
What is a key characteristic of a good portfolio as per portfolio theory?
What is a key characteristic of a good portfolio as per portfolio theory?
What do investors aim to do in terms of risk and returns according to portfolio theory?
What do investors aim to do in terms of risk and returns according to portfolio theory?
Why do investors purchase various types of insurance, according to portfolio theory?
Why do investors purchase various types of insurance, according to portfolio theory?
What does the increase in promised yield on corporate bonds from AAA to A indicate about investors?
What does the increase in promised yield on corporate bonds from AAA to A indicate about investors?
What does portfolio theory assume about investors' preference for assets with equal rates of return?
What does portfolio theory assume about investors' preference for assets with equal rates of return?
What is the evidence of risk aversion in the context of purchasing insurance?
What is the evidence of risk aversion in the context of purchasing insurance?
What is the implication of the difference in promised yield for different grades of bonds?
What is the implication of the difference in promised yield for different grades of bonds?
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