Portfolio Management - Portfolio Management Section 1
41. In accordance to the capital market theory, which of the following risks is priced?
- Option : B
- Explanation : Investors do not receive any return for accepting nonsystematic or diversifiable risk; thus only systematic risk is priced.
42. Which of the following statements is most likely to be correct?
- A
Non-systematic risk The sum of an asset’s systematic variance and its nonsystematic variance of returns is equal to the asset’s total variance.
- B
The sum of an asset’s systematic standard deviation and its nonsystematic standard deviation of returns is equal to the asset’s total risk
- C
The sum of an asset’s systematic returns and its non systematic returns is equal to the asset’s beta.
- Option : A
- Explanation : The sum of an asset’s systematic variance and its nonsystematic variance of returns is equal to the asset’s total variance
- Option : C
- Explanation : Since Andrew aims to maximize risk-adjusted returns, securities with greater nonsystematic returns should have the least weight in the portfolio.
- Option : C
- Explanation : Non-systematic risk can be avoided by investing in a portfolio of assets that are not highly correlated with one another. This reduces the overall total risk and exposes the portfolio to only systematic risk.
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