1. According to Markowitz, rational investors will seek efficient portfolios bec

Question

1. According to Markowitz, rational investors will seek efficient portfolios because these portfolios are optimal based on: a. expected return b. risk c. d· expected return and risk. transactions costs. 2. Which of the following is not one of the assumptions of portfolio theory? a. Liquidity of positions b. Investor preferences are based only on expected return and risk c. d. Low transactions costs A single investment period 3. An indifference curve shows: the one most desirable portfolio for a particular investor a b. c. d. all combinations of portfolios that are equally desirable to a particular investor all combinations of portfolios that are equally desirable to all investors the one most desirable portfolio for all investors 4· The optimal portfolio for a risk-averse investor: a. cannot be determined b. occurs at the point of tangency between the highest indifference curve and the highest expected return occurs at the point of tangency between the highest indifference curve and the efficier set of portfolios c. d. occurs at the point of tangency between the highest expected return and lowest risk efficient portfolios

Explanation / Answer

1)

Option C

Expected return and risk

2)

Option D

A single investment period

3)

Option B

all combinations of portfolios that are equally desirable to a particular investor

4)

Option C

occurs at the point of tangency between the highest indifference curve and the efficient set of portfolios

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