Test Your Knowledge of Portfolio Theory
kylie genner
Created 6/10/2024
Put your understanding of Portfolio Theory to the test with this practice quiz based on the MIT course 15.401 Finance Theory I.
1. What is a portfolio?
A single asset
Collection of n assets, each with share price Pi
A group of liabilities
A company's financial statement
2. Which of the following is a key concept in portfolio theory?
Asset depreciation
Market dynamics
Diversification
Corporate governance
3. What measure is used to determine the risk-return trade-off of a portfolio?
Beta coefficient
Debt ratio
Sharpe ratio
Liquidity ratio
4. What is the main objective of forming an optimal portfolio?
Maximize return for given risk
Minimize asset cost
Maximize number of assets
Minimize the number of shares
5. What does diversification mainly help reduce?
Expected return
Non-systematic risk
Systematic risk
Asset prices
6. What term refers to the locus of all frontier portfolios in the mean-StD plane?
Capital Market Line
Minimum Variance Portfolio
Portfolio Frontier
Security Market Line
7. What is the typical covariance term in a portfolio of n assets?
n variance terms
n2-n covariance terms
1 variance term
1 covariance term
8. What is an efficient frontier portfolio?
A portfolio with the highest possible expected return
A portfolio with the minimal standard deviation for a given return
A portfolio with only risk-free assets
A portfolio with only systematic risk
9. When a risk-free asset is included, what are frontier portfolios combinations of?
The risk-free asset and the Sharpe ratio
The risk-free asset and the tangent portfolio
Multiple portfolios of risky assets
Stock indices and bonds
10. Which is NOT a component to consider while forming portfolios?
Expected returns
Systematic Vs non-systematic risk
Stock liquidity
Portfolio weights
