22 Lecture

1. What is the efficient portfolio frontier? a) The set of portfolios that offer the highest expected return for a given level of risk b) The set of portfolios that offer the lowest expected return for a given level of risk c) The set of portfolios that offer the highest risk for a given level of return d) The set of portfolios that offer the lowest risk for a given level of return

Answer: a) The set of portfolios that offer the highest expected return for a given level of risk

2. What is the purpose of an efficient portfolio map? a) To show the expected return and risk of various portfolios b) To show the expected return of various portfolios c) To show the risk of various portfolios d) None of the above

Answer: a) To show the expected return and risk of various portfolios

3. What is the trade-off between risk and return? a) Higher risk generally leads to higher return, and lower risk generally leads to lower return b) Higher risk generally leads to lower return, and lower risk generally leads to higher return c) Risk and return are unrelated d) None of the above

Answer: b) Higher risk generally leads to lower return, and lower risk generally leads to higher return

4. Which of the following tools is used for portfolio risk analysis? a) Efficient portfolio frontier b) Efficient portfolio map c) Both a and b d) None of the above

Answer: c) Both a and b

5. What does the efficient portfolio frontier show? a) The set of portfolios that offer the highest expected return for a given level of risk b) The set of portfolios that offer the lowest expected return for a given level of risk c) The set of portfolios that offer the highest risk for a given level of return d) The set of portfolios that offer the lowest risk for a given level of return

Answer: a) The set of portfolios that offer the highest expected return for a given level of risk

6. What is the optimal portfolio? a) The portfolio with the highest expected return b) The portfolio with the lowest risk c) The portfolio that meets the investor's specific investment objectives d) None of the above

Answer: c) The portfolio that meets the investor's specific investment objectives

7. What is the co-variance between two assets in a portfolio? a) A measure of how much the returns of the two assets move together b) A measure of how much the returns of the two assets move in opposite directions c) A measure of how much the returns of the two assets are unrelated d) None of the above

Answer: a) A measure of how much the returns of the two assets move together

8. What is the correlation coefficient between two assets in a portfolio? a) A measure of how much the returns of the two assets move together b) A measure of how much the returns of the two assets move in opposite directions c) A measure of how much the returns of the two assets are unrelated d) None of the above

Answer: a) A measure of how much the returns of the two assets move together

9. What is the risk of a portfolio with perfectly correlated assets? a) Lower than the risk of a portfolio with uncorrelated assets b) Higher than the risk of a portfolio with uncorrelated assets c) Equal to the risk of a portfolio with uncorrelated assets d) None of the above

Answer: b) Higher than the risk of a portfolio with uncorrelated assets

10. What is the benefit of diversification in a portfolio? a) Lowering the risk of the portfolio b) Increasing the expected return of the

1. What is the difference between systematic and unsystematic risk? Ans: Systematic risk is the risk that affects the entire market, while unsystematic risk is the risk that only affects a specific company or industry.

2. What is portfolio diversification? Ans: Portfolio diversification is the strategy of investing in a variety of assets with different levels of risk to reduce overall investment risk.

3. What is the efficient frontier in portfolio theory? Ans: The efficient frontier is the set of optimal portfolios that offer the highest expected return for a given level of risk.

4. How is portfolio risk measured? Ans: Portfolio risk is measured by the standard deviation of returns, which is a statistical measure of the degree to which returns vary from the expected value.

5. What is the Capital Asset Pricing Model (CAPM)? Ans: The Capital Asset Pricing Model (CAPM) is a financial model that measures the relationship between risk and expected return in a portfolio.

6. What is the Sharpe ratio? Ans: The Sharpe ratio is a measure of risk-adjusted return that considers the excess return of an investment relative to its risk.

7. What is the difference between a market portfolio and a diversified portfolio? Ans: A market portfolio is a portfolio that contains all assets in the market, while a diversified portfolio contains a variety of assets with different levels of risk.

8. What is the concept of correlation in portfolio analysis? Ans: Correlation is a statistical measure that indicates the degree to which two assets move in relation to each other. In portfolio analysis, correlation is used to determine the diversification benefits of including multiple assets in a portfolio.

9. What is the difference between a minimum variance portfolio and a maximum return portfolio? Ans: A minimum variance portfolio is a portfolio that has the lowest possible risk for a given level of return, while a maximum return portfolio is a portfolio that has the highest possible return for a given level of risk.

10. What is portfolio optimization? Ans: Portfolio optimization is the process of selecting the optimal combination of assets to achieve a specific investment goal, such as maximizing returns or minimizing risk.

Portfolio risk analysis is an essential component of portfolio management, which helps investors to understand the risk and return characteristics of their portfolio. There are different tools and techniques to analyze portfolio risk, such as variance, standard deviation, covariance, correlation, and beta. Efficient portfolio maps provide an illustration of the different possible portfolios that an investor can create based on different levels of risk and expected returns. An efficient portfolio is one that offers the highest expected return for a given level of risk or the lowest risk for a given expected return. The efficient frontier is a graph that represents the set of efficient portfolios that an investor can create by combining different assets or securities. The efficient frontier helps investors to determine the optimal portfolio that maximizes the expected return for a given level of risk. Portfolio risk analysis is crucial because it helps investors to diversify their investments and minimize risk. By analyzing the risk and return characteristics of different securities, investors can create a well-diversified portfolio that spreads the risk across different assets and securities. Efficient portfolio maps help investors to determine the optimal mix of securities that offer the highest expected return for a given level of risk. Moreover, portfolio risk analysis is not a one-time activity, but it requires continuous monitoring and rebalancing. As the market conditions change, the risk and return characteristics of different securities may also change. Therefore, investors need to regularly evaluate their portfolios and make adjustments to ensure that they remain consistent with their investment goals and risk tolerance. In conclusion, portfolio risk analysis and efficient portfolio maps are essential tools for investors to manage their portfolios effectively. By analyzing the risk and return characteristics of different securities and creating well-diversified portfolios, investors can minimize their risk and maximize their returns.