1. For investors who diversify their fund into portfolio, the riskiness of individual asset:

A. should be considered for the asset in isolation

B. should be considered in the context of the effect on overall portfolio volatility.

C. A and B

D. None of the above

2. For a two-stock portfolio, the maximum reduction in risk occurs when the correlation coefficient between the two stocks is:

A. +1

B. 0

C. -0.5

D. -1

3. Markowitz Portfolio Theory is most accurately described as including an assumption that

A. investors have the ability to borrow or lend at the risk-free rate of return

B. investment decision-making is based on both risk and return

C. investment decision-making is based on both rational and irrational factors

D. risk is measured by the range of expected return

4. David is a risk averse investor, Elias is a less risk averse investor than David, therefore

A. for the same risk, David requires a higher rate of return than Elias

B. for the same return, Elias tolerates lower risk than David

C. for the same risk, Elias requires a higher rate of return than David

D. for the same return, David tolerates higher risk than Elias