#1
Which of the following best defines portfolio diversification?
Spreading investment across various assets
ExplanationMinimizing risk by spreading investments.
#2
What is the primary goal of portfolio diversification?
To reduce overall risk
ExplanationRisk reduction through diversification.
#3
What is the main advantage of investing in a mutual fund for diversification?
Professional management
ExplanationAccess to expert portfolio management.
#4
Which of the following best describes the concept of 'asset allocation'?
Spreading investment across various assets
ExplanationDistributing investments across assets.
#5
Which of the following is a measure of the relationship between two assets' price movements?
Correlation
ExplanationQuantifies the relationship between asset prices.
#6
What does a negative correlation coefficient between two assets imply?
They move in opposite directions
ExplanationAssets move inversely.
#7
What is the purpose of using derivatives in portfolio management?
To reduce risk
ExplanationRisk mitigation through derivative use.
#8
Which of the following is NOT a type of risk associated with investment portfolios?
Inflation risk
ExplanationInflation isn't typically a portfolio risk.
#9
Which of the following is a key principle of modern portfolio theory?
Diversify across assets to minimize risk
ExplanationMinimize risk through diversification.
#10
Which risk management technique involves allocating funds among different asset classes?
Diversification
ExplanationSpreading investments to manage risk.
#11
Which of the following statements about systematic risk is true?
It affects the entire market
ExplanationMarket-wide impact of systematic risk.
#12
What does the Sharpe ratio measure?
The risk-adjusted return of an investment
ExplanationAssesses risk-adjusted returns.
#13
What is the purpose of using correlation matrices in portfolio management?
To identify the relationship between assets
ExplanationIdentifying asset price relationships.
#14
What is the main drawback of over-diversification in a portfolio?
Lower returns potential
ExplanationReduced potential for higher returns.