MBA Qatar Quiz 2 - Portfolio Management Quiz

1. The goal of an efficient portfolio is to ________.

Answer: D

• achieve a predetermined rate of return for a given level of risk

• maximize risk in order to maximize profit

• minimize profit in order to minimize risk

• minimize risk for a given level of return

Perfectly ________ correlated series move exactly together and have a correlation coefficient of ________, while perfectly ________ correlated series move exactly in opposite directions and have a correlation coefficient of ________.

• negatively; -1; positively; +1

• negatively; +1; positively; -1

• positively; -1; negatively; +1

• positively; +1; negatively; -1

Combining negatively correlated assets having the same expected return results in a portfolio with ________ level of expected return and ________ level of risk.

• a higher; a lower

• the same; a higher

• the same; a lower

• a lower; a higher

Year Return Asset A Return Asset B

1 6% 8%

2 7% 7%

3 8% . 6%

The correlation of returns between Asset A and Asset B can be characterized as ________.

• perfectly positively correlated

• perfectly negatively correlated

• uncorrelated

• partially correlated

Year Return Asset A Return Asset B Return Asset C

1 6% 8% 5%

2 7% 7% 6%

3 8% 6% 7%

The correlation of returns between Asset A and Asset C can be characterized as ________.

• perfectly positively correlated

• perfectly negatively correlated

• uncorrelated

• partially correlated

Year Return Asset A Return Asset B Return Asset C

1 6% 8% 5%

2 7% 7% 6%

3 8% 6% 7%

If you were to create a portfolio designed to reduce risk by investing equal proportions in each of two different assets, which portfolio would you recommend?

• Assets A and B

• Assets A and C

• none of the available combinations

• cannot be determined

Year Return Asset A Return Asset B Return Asset C

1 6% 8% 5%

2 7% 7% 6%

3 8% 6% 7%

The portfolio with a standard deviation of zero ________.

• ican be comprised of Assets A and B

• can be comprised of Assets A and C

• is not possible

• cannot be determined

You are creating a portfolio of asset A and Asset B. The best result of having return without risk can be achieved when

• Correlation of A and B is 0

• Correlation of A and B is -1

• Correlation of A and B is +1

• Correlation of A amd B is -0,5

When you are craeating a portfolio of A and B and Correlation of A and B is +1

• There will be effect of diversification

• There will be effect of partial diversification

• There will be no effect of diversification

• Best portofolio

Optimal Portfolio means

• for a certain risk, the return is highest

• for a certain risk, the return is lowest

• for a highest risk, the return is lower

• High risk high return and low risk low return