Asset Management Investment Portfolio Asset Allocation

Question 1

Modern Portfolio Theory (MPT), developed by Harry Markowitz, suggests investors should focus on:

Accepted Answer

Portfolio-level risk-return tradeoff through diversification

Answer

MPT demonstrates that combining assets with low correlations reduces portfolio risk without proportionally reducing expected return.

Question 2

What does 'asset allocation' refer to in investment portfolio management?

Accepted Answer

Distribution of investments across asset classes such as equities, bonds, and cash

Answer

Asset allocation is the strategic decision about how to divide a portfolio among different asset classes to meet risk and return objectives.

Question 3

Which asset allocation strategy maintains a fixed percentage in each asset class and periodically buys/sells to restore those targets?

Accepted Answer

Strategic Asset Allocation with Rebalancing

Answer

Strategic asset allocation sets long-term target weights and rebalancing restores those weights after market movements cause drift.

Question 4

The 'efficient frontier' in portfolio theory represents:

Accepted Answer

Set of portfolios offering highest expected return for each level of risk

Answer

The efficient frontier is the curve of optimal portfolios that maximize return for a given risk level or minimize risk for a given return.

Question 5

Which measure quantifies the systematic risk of an investment relative to the overall market?

Accepted Answer

Beta

Answer

Beta measures an asset's sensitivity to market movements; a beta of 1.5 means the asset moves 50% more than the market.

Asset Management Practice Test