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An optimal portfolio receives the highest returns on investments with the highest risks.

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True

False

False. An optimal portfolio meets expected returns with the smallest possible risk.

Modern Portfolio Theory is based on the assumption that _______.

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Investors like risk

Investors dislike risk

Investors always strive for the highest returns

Investors dislike risk. Modern Portfolio Theory is based on the assumption that investors dislike risk but want the highest return for low levels of risk.

Efficient portfolios achieve low volatility by _______.

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Asset allocation

Investing only in low-risk securities

Controlling the markets

Asset allocation. Efficient portfolios achieve low volatility by diversifying.

If an investor is not afraid of taking risks, he or she is risk-averse.

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True

False

False. Risk-averse people are, to varying extents, wary of risk and do not invite it.

Modern Portfolio Theory is based on the relationship between risk and volatility.

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True

False

False. Modern Portfolio Theory is based on the relationship between risk and reward.

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