Test your knowledge

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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.

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.

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.

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.

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