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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.

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.

An efficient portfolio is likely to consistently beat the market.

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True

False

False. Efficient portfolios are not likely to beat the market.

What assumption does Modern Portfolio Theory make regarding risk?

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Investors welcome risk.

Investors want to avoid unnecessary risk.

Risk is healthy.

Low risk can yield high returns.

Investors want to avoid unnecessary risk. The theory seeks the maximum return on a low level 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.

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