Which of the following statements is true? (0.5 marks)Question 12Answera.The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its profitability, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are imperfectly correlated.b.The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its profitability, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are perfectly correlated.c.The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its size, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are perfectly correlated.d.The fundamental lesson of modern portfolio theory (MPT) is that by taking advantage of its size, an FI can diversify considerable amounts of credit risk as long as the returns on different assets are imperfectly correlated.

Which of the following statements does not reflect conventional wisdom with respect to risk analysis:It’s very hard to time market exits and entriesThe markets are over-valued and are due for a correctionThe market rewards additional risk by providing additional returnNegatively correlated returns would result in diversification benefitsEfficient markets suggest that prices reflect existing information

1. In a world where security prices are jointly normally distributed, rational investors who are risk averse will choose an optimal portfolio from those along an efficient frontier. In other words, given a choice of two portfolios with the same level of expected return, they will choose the portfolio with the lowest standard deviation  a. In the absence of a risk free-security, explain the relationship between an investor's level of risk aversion and the optimal portfolio they would choose on the efficient frontier given classic Modern Portfolio Theory (MPT). (4 marks)  b. In the presence of a risk free-security, explain the relationship between an investor's level of risk aversion and the optimal portfolio they would choose on the efficient frontier given classic MPT. (4 marks)  c. In the absence of a risk free-security, explain how an investor's choice of an optimal portfolio might differ from that in Question 1.a, given "Goals based" behaviour similar to that described by Das et al(2018). (4 marks)

Which of the following statements about the ‘Portfolio Theory’ section of the lecture material are TRUE:The standard deviation of a portfolio of shares in two different companies will always be less than the weighted average of the standard deviations of the individual shares.A share portfolio that follows a diversified market index is expected to offer a reasonably efficient trade-off between expected return and risk.Question 8AnswerNeither of the statements are true (both are false)Only statement 1 is trueOnly statement 2 is trueBoth statements are true (neither are false)

Which of the statement is WRONG?A.The market portfolio contains all shares of all stocks and securities in the market.B.There is no clear relationship between the volatility and return of individual stocks.C.Diversification eliminates both idiosyncratic risk and systematic risk.D.The total risk of a security contains risk which is not rewarded.

QUESTION 22Which of the following statements is FALSE?A.The return from investing in mutual funds can include dividends, gains from the sale of the mutual fund assets, and gains from the sale of the mutual fund shares. B.Mutual funds are financial intermediaries that invest in diversified portfolios of assets. C.Hedge funds offer a high degree of privacy for their investors.D.Life insurance companies tend to concentrate their investments at the short term of the investment spectrum. E.One of the goals of mutual funds is to achieve superior diversification through fund and risk pooling compared to what individual investors can achieve.