CPS Portfolio Construction and Design 2

Question 1

What is the efficient frontier in modern portfolio theory?

Accepted Answer

The set of portfolios offering maximum return for a given risk level

Answer

A limit on the number of holdings

Answer

A government regulation on portfolio size

Answer

The boundary between stocks and bonds

Question 2

Which metric measures the return per unit of total risk in portfolio analysis?

Accepted Answer

Sharpe Ratio

Answer

Alpha

Answer

Beta

Answer

R-squared

Question 3

What does 'correlation' between assets indicate in portfolio construction?

Accepted Answer

How assets move in relation to each other

Answer

The size of the assets

Answer

The assets' dividend yield

Answer

Their combined market cap

Question 4

Which asset class is typically added to a portfolio to reduce equity risk through diversification?

Accepted Answer

Fixed income / bonds

Answer

More equities

Answer

Leveraged ETFs

Answer

Commodities futures only

Question 5

What is 'core-satellite' portfolio construction?

Accepted Answer

Combining a stable core with opportunistic satellite positions

Answer

Investing only in large-cap stocks

Answer

Using only index funds

Answer

Building a portfolio of derivatives only

Question 6

In portfolio construction, what does 'liquidity' requirement affect?

Accepted Answer

The types and proportions of assets that can be held

Answer

Only the equity portion

Answer

Only cash allocation

Answer

The portfolio's tax efficiency