#1
Which of the following is NOT a measure of investment risk?
Expected Return
ExplanationIt's a measure of potential gain, not risk.
#2
What is the primary goal of portfolio diversification?
To decrease the risk of the portfolio
ExplanationBy spreading investments, risk is reduced.
#3
What does the term 'correlation' refer to in portfolio analysis?
The degree to which two assets move in relation to each other
ExplanationIt measures the relationship between asset movements.
#4
What is the primary purpose of portfolio rebalancing?
To maintain the desired asset allocation and risk level
ExplanationIt ensures investments align with goals and risk tolerance.
#5
Which of the following risk management techniques involves spreading investments across different asset classes?
Diversification
ExplanationIt mitigates risk by not putting all eggs in one basket.
#6
Which of the following is a characteristic of a well-diversified portfolio?
It has low correlation among assets
ExplanationLow correlation minimizes collective risk.
#7
What is the purpose of using Value at Risk (VaR) in portfolio risk management?
To measure the maximum loss the portfolio could suffer over a given time period at a certain confidence level
ExplanationVaR quantifies potential losses.
#8
What does the Capital Asset Pricing Model (CAPM) measure?
The expected return of a well-diversified portfolio
ExplanationCAPM estimates expected returns.
#9
Which of the following is a factor affecting systematic risk?
Interest rate fluctuations
ExplanationSystematic risk is influenced by macroeconomic factors.
#10
Which of the following is NOT a component of the Modern Portfolio Theory (MPT)?
Earnings per share
ExplanationMPT focuses on asset allocation, not individual stock metrics.
#11
In portfolio management, what does the Sharpe Ratio measure?
The portfolio's risk-adjusted return
ExplanationIt assesses return in relation to risk taken.
#12
What is the purpose of stress testing in portfolio risk management?
To estimate the likelihood of extreme losses under adverse market conditions
ExplanationIt gauges vulnerability to severe scenarios.
#13
What is the purpose of Monte Carlo simulation in portfolio analysis?
To estimate the probability distribution of possible outcomes
ExplanationIt models various scenarios to predict outcomes.
#14
Which of the following statements about alpha in portfolio management is true?
Alpha measures the excess return of a portfolio compared to its expected return based on its beta
ExplanationAlpha gauges performance above or below the benchmark.
#15
What does the Sortino Ratio measure in portfolio analysis?
The risk-adjusted return of a portfolio relative to its downside risk
ExplanationIt evaluates return in light of downside volatility.