STUDENTS SUCCESS
Revision Examination Tests
“Come all for this Greatness”
... 100% Correct Ans ...
PORTFOLIO THEORY EXAM TESTS 2024-2025 COMPLETE
QUESTIONS AND CORRECT DETAILED ANSWERS
What is needed to describe the distribution of stock returns?
Ans: The average return and Standard Deviation
Quiz What does standard deviation represent?
Ans: Risk
Quiz What does expected return represent?
Ans: Reward
Quiz What are determinants of the variance of a portfolio consisting of two
securities?
Ans: The variances and covariance of the individual securities' returns
Quiz Combining a less risky US stock fund with a more risky international stock fund
would reduce the overall risk of a portfolio if:
Ans: the correlation between the two markets was less than 1
Quiz What will happen to the risk of a portfolio composed of two securities as more
dollars are invested in the riskier asset?
Ans: It can increase or decrease.
Quiz What does the efficient set depend on?
Ans: expected returns and variances of the securities and covariance between the
two
Quiz The Sharpe ratio is the stock's excess return (risk premium) divided by its ____.
, Ans: standard deviation
Quiz An investor who borrows additional funds and invests them in a risky asset is
probably:
Ans: not very risk averse
Quiz The Sharpe ratio measures ___.
Ans: risk-adjusted performance
Quiz What are the two components of the expected return on the market (RMRM)?
Ans: The risk premium
The risk-free rate (RF)
Quiz Where is the market portfolio positioned in relation to the security market line?
Ans: On the security market line
Quiz If a security's expected return is equal to the risk-free rate of return, and the
market-risk premium is greater than zero, what can you conclude about the value of
the security's beta based on CAPM?
Ans: E(Ri) = Rf +βi(RM - Rf) = Rf → βi= 0
Quiz What is the slope of the security market line (SML)?
Ans: The market-risk premium
Quiz What is a risk premium?
Ans: It is additional compensation for taking risk, over and above the risk-free rate.
Quiz The security market line will be ____ if the expected return on the market is
higher than the risk-free rate.
Ans: upward sloping
Quiz What is the intercept of the security market line (SML)?
Ans: The risk-free rate
Quiz If investors are risk averse, it is reasonable to assume that the risk premium for
the stock market will be:
Ans: If investors are averse to risk, they will demand higher returns from the market,
thereby meaning that the risk premium will be positive (greater than zero).
Revision Examination Tests
“Come all for this Greatness”
... 100% Correct Ans ...
PORTFOLIO THEORY EXAM TESTS 2024-2025 COMPLETE
QUESTIONS AND CORRECT DETAILED ANSWERS
What is needed to describe the distribution of stock returns?
Ans: The average return and Standard Deviation
Quiz What does standard deviation represent?
Ans: Risk
Quiz What does expected return represent?
Ans: Reward
Quiz What are determinants of the variance of a portfolio consisting of two
securities?
Ans: The variances and covariance of the individual securities' returns
Quiz Combining a less risky US stock fund with a more risky international stock fund
would reduce the overall risk of a portfolio if:
Ans: the correlation between the two markets was less than 1
Quiz What will happen to the risk of a portfolio composed of two securities as more
dollars are invested in the riskier asset?
Ans: It can increase or decrease.
Quiz What does the efficient set depend on?
Ans: expected returns and variances of the securities and covariance between the
two
Quiz The Sharpe ratio is the stock's excess return (risk premium) divided by its ____.
, Ans: standard deviation
Quiz An investor who borrows additional funds and invests them in a risky asset is
probably:
Ans: not very risk averse
Quiz The Sharpe ratio measures ___.
Ans: risk-adjusted performance
Quiz What are the two components of the expected return on the market (RMRM)?
Ans: The risk premium
The risk-free rate (RF)
Quiz Where is the market portfolio positioned in relation to the security market line?
Ans: On the security market line
Quiz If a security's expected return is equal to the risk-free rate of return, and the
market-risk premium is greater than zero, what can you conclude about the value of
the security's beta based on CAPM?
Ans: E(Ri) = Rf +βi(RM - Rf) = Rf → βi= 0
Quiz What is the slope of the security market line (SML)?
Ans: The market-risk premium
Quiz What is a risk premium?
Ans: It is additional compensation for taking risk, over and above the risk-free rate.
Quiz The security market line will be ____ if the expected return on the market is
higher than the risk-free rate.
Ans: upward sloping
Quiz What is the intercept of the security market line (SML)?
Ans: The risk-free rate
Quiz If investors are risk averse, it is reasonable to assume that the risk premium for
the stock market will be:
Ans: If investors are averse to risk, they will demand higher returns from the market,
thereby meaning that the risk premium will be positive (greater than zero).
