Wealth-Forum e-zine

Test your understanding of this topic

Q1.

A statistical measure of the degree to which two securities returns move together.

a. coefficient of variation

b. variance

c. correlation

d. certainty equivalent

Q2.

Which of the following sayings best describes the concept of diversification?

a. Don’t put all your eggs in one basket

b. Don’t count your chickens before they’re hatched

c. A bird in the hand is worth two in the bush

d. None of the above

Q3.

The MPT demonstrates that an efficient set of portfolios represent the maximum return possible for any given level of risk.

a. True

b. False

Q4.

The term efficient frontier refers to the set of portfolios that

a. yield the greatest return for a given level of risk

b. involve the least risk for a given level of return

c. Both a and b above

d. None of the above answers are correct

Q5.

Which of the following 3 portfolios is unlikely to lie on the efficient frontier?

a. Portfolio A : Expected return : 15%, Standard deviation : 20%

b. Portfolio B : Expected return : 14%, Standard deviation : 30%

c. Portfolio C : Expected return : 13%, Standard deviation : 15%