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Portfolios 503: Modern Portfolio Theory

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1.
The main benefit of an efficient portfolio is high returns.
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False. The main benefit of an efficient portfolio is low volatility for a given level of return.
2.
The risk of a portfolio asset being affected by market changes is called systematic risk.
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True. The risk of a portfolio asset being affected by market changes is called systematic risk.
3.
If you invest in a portfolio at the bottom of the efficient frontier curve, the portfolio has _______.
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Low returns and low risk. The bottom of the efficient frontier involves low risk and low return.
4.
If an investor is not afraid of taking risks, he or she is risk-averse.
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False. Risk-averse people are, to varying extents, wary of risk and do not invite it.
5.
An efficient portfolio seeks the highest return for the________.
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Lowest volatility. The theory helps you to locate the best-performing set of assets for the lowest amount of volatility.