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Portfolios 503: Modern Portfolio Theory

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1.
The lower the volatility of an investment, the _______ its reward.
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Lower. Safe investments do not reward their owners as well as volatile ones do.
2.
What assumption does Modern Portfolio Theory make regarding risk?
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Investors want to avoid unnecessary risk. The theory seeks the maximum return on a low level of risk.
3.
An efficient portfolio is likely to consistently beat the market.
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False. Efficient portfolios are not likely to beat the market.
4.
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.
5.
Modern Portfolio Theory is based on the assumption that _______.
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Investors dislike risk. Modern Portfolio Theory is based on the assumption that investors dislike risk but want the highest return for low levels of risk.