1. Foundations of Finance

Risk And Return — Quiz

Test your understanding of risk and return with 5 practice questions.

Practice Questions

Question 1

Given two assets A and B with standard deviations $\sigma_A=20\%$ and $\sigma_B=15\%$, correlation $\rho_{AB}=0.3$, and portfolio weights $w_A=0.6$ and $w_B=0.4$, what is the portfolio variance $\sigma_p^2$?

Question 2

What weight $w_A$ on asset A minimizes the variance of a two-asset portfolio with $\sigma_A=20\%$, $\sigma_B=15\%$, and $\rho_{AB}=0.3$?

Question 3

A portfolio has an expected return of $12\%$, standard deviation $18\%$, and the risk-free rate is $4\%$. What is the portfolio’s Sharpe ratio?

Question 4

Project X has expected return $12\%$ and standard deviation $8\%$. Project Y has expected return $15\%$ and standard deviation $12\%$. Which project offers a better risk-return trade-off based on the coefficient of variation?

Question 5

According to the CAPM, what is the expected return of a stock with beta $1.2$, risk-free rate $2\%$, and expected market return $8\%$?