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Questions and Answers

What is a risk-free asset?

An asset with certain return and zero default risk (correct)

An asset with uncertain return and non-zero default risk

An asset with certain return and non-zero default risk

An asset with uncertain return and zero default risk

According to Markowitz (1952), what is the focus of portfolios?

Maximizing return while ignoring risk

Minimizing both risk and return

Maximizing risk and return simultaneously

Minimizing risk while maximizing return (correct)

What is the general definition of return?

The total of income stream and change in asset price (correct)

The change in asset price (capital gain/loss)

The difference between the amount received and the initial investment

The income stream associated with an investment

What does a risky asset entail?

Uncertain return and non-zero default risk Signup and view all the answers

How is a portfolio defined?

A collection of assets defined by portfolio weights Signup and view all the answers

In Modern Portfolio Theory, what is the primary focus in relation to risk and return?

Maximizing return while minimizing risk through diversification Signup and view all the answers

What is the distinguishing feature of a risk-free asset?

Certain return and zero default risk Signup and view all the answers

Which factor contributes to the total return of an investment?

Income stream and change in asset price Signup and view all the answers

What is the primary function of portfolio weights in defining a portfolio?

Determining the allocation of assets within the portfolio Signup and view all the answers

According to Markowitz (1952), what approach characterizes a risk-averse investor's focus on portfolios?

Balancing risk and return to achieve optimal portfolio diversification Signup and view all the answers