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If you invest in a portfolio at the bottom of the efficient frontier curve, the portfolio has _______.

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High returns and high risk

High returns and low risk

Low returns and high risk

Low returns and low risk

Low returns and low risk. The bottom of the efficient frontier involves low risk and low return.

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.

The main benefit of an efficient portfolio is high returns.

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True

False

False. The main benefit of an efficient portfolio is low volatility for a given level of return.

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 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.

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