If the Plotting of a Portfolio's Returns Against Returns on the Market

question 30

Multiple Choice

If the plotting of a portfolio's returns against returns on the market index produces a tight pattern, then:

• A)The portfolio appears to be well diversified
• B)The portfolio has a Beta of 1.0
• C)The portfolio has very little systematic risk
• D)The portfolio has a very low market risk premium

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Definitions:

Residual Return

The return on an investment beyond what is predicted by market movements or models, often associated with active management performance.

Liquidity Risk

The risk that an entity may not be able to quickly convert assets to cash without significant losses.

Portfolio Management

The science and art of making decisions about investment mix and policy, matching investments to objectives, asset allocation, and balancing risk against performance.

Asset Value

The value of a company's assets, often used in determining its worth or the value of its shares.