#1
What is the primary goal of risk management in portfolio management?
To minimize the impact of adverse events on portfolio value
ExplanationMinimize adverse event impact
#2
What is the purpose of diversification in portfolio management?
To minimize risk by investing in different assets
ExplanationRisk reduction via asset variety
#3
What is the role of correlation in portfolio diversification?
To reduce the overall risk of the portfolio
ExplanationRisk reduction via correlation
#4
What is the relationship between risk and return in portfolio management?
Higher risk may lead to higher returns, but not always
ExplanationRisk-return relation variability
#5
What is the purpose of the Markowitz Efficient Frontier?
To visualize the trade-off between risk and return in a portfolio
ExplanationRisk-return visualization
#6
Which of the following is a common measure of investment risk?
Standard deviation
ExplanationCommon measure of risk
#7
What does the Capital Asset Pricing Model (CAPM) help investors to determine?
The expected return on an investment
ExplanationDetermines expected return
#8
Which type of risk affects an entire market or economy and cannot be diversified away?
Systematic risk
ExplanationMarket-wide risk
#9
Which of the following is NOT a commonly used measure of portfolio performance?
Earnings per share
ExplanationNot a portfolio performance measure
#10
What is meant by the term 'alpha' in portfolio management?
The excess return of a portfolio compared to its benchmark
ExplanationPortfolio return excess
#11
Which of the following best describes a stop-loss order?
An order to sell a security when its price falls below a certain level
ExplanationSecurity sell at price drop
#12
What is the formula to calculate portfolio variance when considering two assets?
w1^2σ1^2 + w2^2σ2^2 + 2w1w2ρσ1σ2
ExplanationPortfolio variance formula
#13
What is the main drawback of using historical data to estimate future risk in portfolio management?
Historical data cannot capture changes in market conditions
ExplanationInadequate market condition capture
#14
What is the primary goal of dynamic asset allocation?
To actively adjust portfolio allocations based on market conditions
ExplanationActive portfolio adjustment
#15
What is the key assumption of Modern Portfolio Theory (MPT)?
Investors are risk-averse
ExplanationInvestor risk aversion assumption
#16
What is the main drawback of using Monte Carlo simulation in risk management?
It is computationally intensive
ExplanationComputational intensity issue