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1.
Investment portfolios can be called efficient when they ________.
Contain the best possible mixes of assets for a specific risk level and return. Efficiency is relative to the kind of objective that you are trying to fulfill.
2.
A portfolio with negatively correlated assets reduces volatility.
True. When some assets fall in value, others will rise in value, and vice versa.
3.
What are the two most basic types of risk?
Systematic and unsystematic. All other types of risk fall into these two categories.
4.
How does having a lot of money affect your risk tolerance?
It can enable you to afford loss. If you have a lot of money, you can afford to lose some, and so your risk tolerance will increase.
5.
A slump in one industry can actually help other industries.
True. In industries that meet similar needs, people may use the products or services of another industry if their preferred one experiences major problems. For instance, if there are problems in the airline industry, transportation needs may be met by driving or using trains.
6.
In investing language, what does it mean to diversify?
To divide your investments among a variety of assets. This can mean different types of assets, different industries, different countries, etc.
7.
A fall in price of one security in a diversified portfolio may be offset by an increase in price of another.
True. Problems in one industry may lead people to seek the products or services of another in your portfolio.