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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.

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.

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.

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.

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.

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