Portfolio Management MCQ - Portfolio Management Section 1

41 In accordance to the capital market theory, which of the following risks is priced?

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.

The sum of an asset’s systematic variance and its nonsystematic variance of returns is equal to the asset’s total variance

43 Andrew, a portfolio manager, aims to maximize risk-adjusted returns. He is least likely to invest in securities with a nonsystematic variance of:

Since Andrew aims to maximize risk-adjusted returns, securities with greater nonsystematic returns should have the least weight in the portfolio.

44 Kate Beckett invested her wealth in a diversified portfolio. Which of the following is she most likely to avoid?

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.

45 Barry wishes to compute the beta of a stock that has a correlation of 0.64 with the market. The following data is available: Standard Deviation of Returns of Stock = 14.1%. Standard Deviation of Returns of Market = 9.44%. The beta is closest to: