Which of the following is a key component of risk in financial analysis?
a) Price volatility
b) Inflation rate
c) Interest rates
d) All of the above
What does the expected return on an investment represent?
a) The risk associated with the investment
b) The average return that an investor expects to receive
c) The potential loss of an investment
d) The market value of the investment
Which of the following is used to measure the risk of an individual asset?
a) Beta
b) Standard deviation
c) Alpha
d) Correlation coefficient
What does the coefficient of variation measure?
a) The risk-free rate of return
b) The relationship between risk and return
c) The variance of returns
d) The total return of an investment
In the context of risk-return analysis, what does a higher beta indicate?
a) A lower level of risk
b) A higher level of market risk
c) A lower expected return
d) A lower correlation with market returns
Which of the following describes systematic risk?
a) Risk that affects the entire market or economy
b) Risk specific to an individual asset or company
c) Risk that can be eliminated through diversification
d) Risk that is irrelevant to investors
What is meant by the term “risk premium”?
a) The return on a risk-free asset
b) The additional return an investor expects from a risky asset compared to a risk-free asset
c) The amount of risk in a portfolio
d) The average market return
Which of the following is a measure of total portfolio risk?
a) Standard deviation
b) Correlation coefficient
c) Beta
d) Market risk
In risk-return analysis, which of the following is the primary measure of return?
a) Standard deviation
b) Market value
c) Expected return
d) Portfolio diversification
Which of the following does diversification help reduce in a portfolio?
a) Systematic risk
b) Unsystematic risk
c) Market risk
d) Both systematic and unsystematic risk
What is the Capital Asset Pricing Model (CAPM) used to calculate?
a) The expected return on an asset based on its risk
b) The market price of a stock
c) The beta of a portfolio
d) The risk-free rate of return
What is the relationship between risk and return in the context of modern portfolio theory?
a) There is no relationship between risk and return
b) Higher risk typically leads to lower expected return
c) Higher risk typically leads to higher expected return
d) The return is independent of risk
Which of the following is a characteristic of a risk-averse investor?
a) Prefers higher returns with higher risk
b) Prefers lower returns with lower risk
c) Is indifferent to risk and return
d) Seeks high-risk, high-return investments without considering risk
Which of the following is the main reason that investors diversify their portfolios?
a) To maximize returns
b) To eliminate all risk
c) To reduce the total portfolio risk
d) To achieve high beta
What does the Sharpe ratio measure in risk-return analysis?
a) The risk-free rate of return
b) The excess return per unit of risk in an investment
c) The correlation between assets in a portfolio
d) The market return for a specific period
What does a portfolio with a beta of 1.0 imply?
a) The portfolio is risk-free
b) The portfolio is expected to move in line with the overall market
c) The portfolio has no systematic risk
d) The portfolio is riskier than the market
Which of the following describes unsystematic risk?
a) Risk that affects the overall market
b) Risk specific to a company or industry
c) Risk that is diversifiable
d) Both b and c
What does the term “diversification” refer to in risk-return analysis?
a) The process of increasing risk in a portfolio
b) The process of spreading investments across different assets to reduce risk
c) The process of eliminating all risk in an investment
d) The process of investing in only high-risk assets
Which of the following is true about the relationship between risk and return?
a) Investors are willing to accept higher risk for a lower potential return
b) Higher returns always lead to higher risk
c) Investors are typically willing to accept higher risk for higher potential returns
d) Risk and return are independent of each other
What does the term “systematic risk” refer to?
a) Risk that can be eliminated through diversification
b) Risk specific to a particular company or industry
c) Risk that affects the entire market or economy
d) Risk related to the volatility of individual assets
Which of the following is NOT a type of risk considered in risk-return analysis?
a) Market risk
b) Credit risk
c) Currency risk
d) Commodity risk
What is the primary assumption of the Capital Asset Pricing Model (CAPM)?
a) Investors are risk-averse
b) All investors have the same expectations of risk and return
c) Markets are inefficient
d) Investors are willing to accept any level of risk
Which of the following is true about the market portfolio in CAPM?
a) It includes all risky assets in the market
b) It includes only low-risk assets
c) It includes only government bonds
d) It includes only stocks from large companies
How does the risk-return tradeoff affect an investor’s portfolio decisions?
a) Investors aim to maximize risk with no concern for return
b) Investors balance their portfolio to achieve the highest possible return for a given level of risk
c) Investors ignore risk in favor of maximizing return
d) Investors choose assets based solely on return, without considering risk
What is the main goal of risk-return analysis for an investor?
a) To maximize risk in the portfolio
b) To minimize the potential return
c) To achieve the highest return with the least amount of risk
d) To eliminate all types of risk in the portfolio
Which of the following is used to assess the risk of a portfolio consisting of multiple assets?
a) Standard deviation
b) Portfolio beta
c) Portfolio correlation
d) Portfolio weight
Which of the following is an example of a risk that cannot be diversified away?
a) Industry-specific risk
b) Systematic risk
c) Company-specific risk
d) Interest rate risk
