Test your knowledge

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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.

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 lower the volatility of an investment, the _______ its reward.

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Greater

Lower

Lower. Safe investments do not reward their owners as well as volatile ones do.

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.

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.

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