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The risk of a portfolio asset being affected by market changes is called systematic risk.

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True

False

True. The risk of a portfolio asset being affected by market changes is called systematic risk.

An efficient portfolio seeks the highest return for the________.

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Highest risk

Lowest volatility

Highest volatility

Lowest risk

Lowest volatility. The theory helps you to locate the best-performing set of assets for the lowest amount of volatility.

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.

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.

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.

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