Portfolio Management - Portfolio Management Section 1
36. In accordance with the capital market theory, the optimal risky portfolio is most likely to:
- Option : C
- Explanation : The optimal risky portfolio is the market portfolio. The capital market theory assumes that investors have homogeneous expectations and are rational. As a result, same inputs are used for valuation purposes and hence the expected return and expected variance do not differ
- Option : C
- Explanation : A borrowing portfolio is towards the right of the point M on the capital market line, as increasing amounts of borrowed money is being invested. The further towards the right, the greater the returns.
38. Risk that can be attributed to factor(s) that impact the market is least likely described as:
- Option : C
- Explanation : Risk that is due to company-specific or industry-specific factors is referred to as unsystematic risk.
39. Which of the following is least likely to be synonymous with systematic risk?
- Option : C
- Explanation : Firm-specific risk is known as unsystematic risk and can be diversified unlike the systematic or market risk.
40. Which of the following is most likely to be an example of a nonsystematic risk?
- Option : A
- Explanation : Nonsystematic risks are firm specific risks; natural disasters and political uncertainty are factors that affect the entire market and are thus systematic risks.
