4. Investment Analysis

Portfolio Theory — Quiz

Test your understanding of portfolio theory with 5 practice questions.

Practice Questions

Question 1

At what correlation coefficient does adding an asset provide no diversification benefit?

Question 2

In a two-asset portfolio where both assets have equal standard deviation $\sigma$ and are equally weighted, if the asset returns are uncorrelated, what is the portfolio's standard deviation?

Question 3

Which theorem states that investors can form any efficient portfolio by combining a risk-free asset and a single mutual fund of risky assets?

Question 4

If Asset A has beta $0.8$ and Asset B has beta $1.2$, and an investor allocates $30\%$ to A and $70\%$ to B, what is the portfolio beta $\beta_p$?

Question 5

A portfolio has expected return $12\%$, risk-free rate $3\%$, and beta $1.5$. What is the Treynor ratio?