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Charles P. Jones, Investment: Principles and Concepts, Twelfth Edition, John Wiley & Sons test bank.
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Charles P. Jones, Investment: Principles and Concepts, Twelfth Edition, John Wiley & Sons.
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File: Ch.08, Chapter 8: Portfolio SelectionMultiple Choice Questions
1. According to Markowitz, rational investors will seek efficient portfolios
because these portfolios are optimal based on:
a. expected return.
b. risk.
c. expected return and risk.
d. transactions costs.
Ans: c
Difficulty: Easy
Ref: Building a Portfolio Using Markowitz Principles
2. Under the Markowitz model, investors:
a. are assumed to be risk-seekers
b. are not allowed to use leverage
c. are assumed to be institutional investors
d. are always better off if they select portfolios consisting of multiple securities
Ans: b
Difficulty: Moderate
Ref: Building a Portfolio Using Markowitz Principles
3. 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. Low transactions costs
d. A single investment period
Ans: d
Difficulty: Moderate
Ref: Building a Portfolio Using Markowitz Principles
4. When the Markowitz model assumes that most investors are considered to be
“risk averse”, this really means that they:
a. will not take a “fair gamble”
b. will take a “fair gamble”
c. will take a “fair gamble” fifty percent of the time
d. will never assume investment risk
Chapter Eight 94
Portfolio Selection
, Ans: a
Difficulty: Easy
Ref: Building a Portfolio Using Markowitz Principles
5. An indifference curve shows:
a. the one most desirable portfolio for a particular investor
b. all combinations of portfolios that are equally desirable to a particular investor
c. all combinations of portfolios that are equally desirable to all investors
d. the one most desirable portfolio for all investors
Ans: b
Difficulty: Difficult
Ref: Building a Portfolio Using Markowitz Principles
6. Which of the following statements regarding indifference curves is not
true?
a. Investors have a finite number of indifference curves
b. The greater the slope of the indifference curve, the greater the risk aversion of
investors
c. The indifference curves for all risk-averse investors will be upward sloping
d. Indifference curves cannot intersect
Ans: a
Difficulty: Difficult
Ref: Building a Portfolio Using Markowitz Principles
7. 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
c. occurs at the point of tangency between the highest indifference curve and the
efficient set of portfolios
d. occurs at the point of tangency between the highest expected return and lowest
risk efficient portfolios
Ans: c
Difficulty: Difficult
Ref: Building a Portfolio Using Markowitz Principles
8. Indifference curves reflect -------------- while the efficient set of portfolios
represent ---------------.
a. portfolio possibilities; investor preferences.
b. investor preferences; portfolio possibilities.
c. portfolio return; investor risk.
d. investor preferences; portfolio return.
Chapter Eight 95
Portfolio Selection
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