10 Questions
What is a basic assumption of portfolio theory?
Investors want to maximize returns for a given level of risk
What should a portfolio include according to the assumptions of portfolio theory?
All assets and liabilities
Why should the full spectrum of investments be considered in a portfolio?
Because the returns from all investments interact
What is a key characteristic of a good portfolio as per portfolio theory?
Not simply a collection of individually good investments
What do investors aim to do in terms of risk and returns according to portfolio theory?
Maximize returns for a given level of risk
Why do investors purchase various types of insurance, according to portfolio theory?
To guard against uncertain future outlays
What does the increase in promised yield on corporate bonds from AAA to A indicate about investors?
They require a higher rate of return to accept higher risk
What does portfolio theory assume about investors' preference for assets with equal rates of return?
They will select the asset with the lower level of risk
What is the evidence of risk aversion in the context of purchasing insurance?
Outlay of a known dollar value to guard against an uncertain future outlay
What is the implication of the difference in promised yield for different grades of bonds?
Investors require a higher rate of return to accept higher risk
Test your understanding of portfolio theory with this quiz covering concepts such as optimum portfolio, risk aversion, and maximizing returns for a given level of risk. Challenge your knowledge of investment strategies and key assumptions in portfolio theory.
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