Portfolio Risk and Return: Part I practice questions

What to know

Identify the rule, formula, or decision criterion before reading the answer choices. CFA Level I distractors often use the right vocabulary with the wrong condition.

How to practice

Work each item under time pressure, then compare your reasoning with the step-by-step explanation and key takeaway.

Review signal

Missed questions should become scheduled reviews when the error comes from a concept gap, formula setup, or answer-choice trap.

Portfolio Management

Portfolio Risk and Return: Part I

Based on long-run historical capital market data, the asset class that has exhibited both the highest average annual return and the highest standard deviation of returns is most likely:

Portfolio Management

Portfolio Risk and Return: Part I

On a graph of expected return against standard deviation, the indifference curves of a more risk-averse investor, relative to those of a less risk-averse investor, are most likely:

Portfolio Management

Portfolio Risk and Return: Part I

Priya Nair allocates her assets between a risk-free asset yielding 4.0% and a risky fund with an expected return of 10.0% and a standard deviation of 20.0%. She targets a complete portfolio standard deviation of 12.0%. The expected return of her complete portfolio is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

The holding period return for a stock purchased at P0, sold at P1, and paying income D during the period is:

Portfolio Management

Portfolio Risk and Return: Part I

Tomas Reyes invests 70% of a portfolio in a domestic equity fund with a standard deviation of 14% and 30% in a commodity fund with a standard deviation of 26%. The correlation between the two funds is -0.30. The portfolio standard deviation is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

For a volatile series of returns, the geometric mean return is most likely:

Portfolio Management

Portfolio Risk and Return: Part I

Ingrid Sorensen holds 50% in Asset A (standard deviation 16%) and 50% in Asset B (standard deviation 24%), with a correlation of 0.20 between the assets. Relative to the portfolio standard deviation that would result if the correlation were +1.0, the reduction in portfolio standard deviation achieved at the actual correlation is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

When a portfolio manager is evaluated independently of the timing of client external cash flows, the most appropriate return measure is:

Portfolio Management

Portfolio Risk and Return: Part I

The expected return of a risky asset with discrete scenarios is calculated as the:

Portfolio Management

Portfolio Risk and Return: Part I

The expected return of a portfolio is most accurately calculated as the:

Portfolio Management

Portfolio Risk and Return: Part I

For a two-asset risky portfolio, diversification benefits are greatest when the assets have:

Portfolio Management

Portfolio Risk and Return: Part I

A risk-averse investor will most likely choose, among portfolios with the same expected return, the portfolio with the:

Portfolio Management

Portfolio Risk and Return: Part I

The slope of the capital allocation line is best interpreted as the:

Portfolio Management

Portfolio Risk and Return: Part I

The efficient frontier of risky assets consists of portfolios that:

Portfolio Management

Portfolio Risk and Return: Part I

An investor buys a share for 100, sells it one year later for 94, and receives a dividend of 2. The holding period return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A portfolio has annual returns of -5%, 10%, and 35%. The arithmetic mean return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A fund earns 10%, -5%, and 15% over three years. The annual geometric mean return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

Given scenario returns of -4%, 8%, and 16% with probabilities of 0.30, 0.50, and 0.20, respectively, the expected return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

For returns of 4%, 8%, and 12%, the population standard deviation is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

Asset A has a standard deviation of 10%, Asset B has a standard deviation of 20%, and the correlation between the assets is 0.50. The covariance between A and B is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

The covariance between two assets is 0.012. The standard deviations of the assets are 20% and 30%. The correlation is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A portfolio invests 60% in Asset X with expected return of 8% and 40% in Asset Y with expected return of 12%. The portfolio expected return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A portfolio has 60% in Asset A and 40% in Asset B. Asset A has standard deviation of 10%, Asset B has standard deviation of 20%, and their correlation is 0.25. The portfolio standard deviation is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

An account begins with 100. It grows to 110 before an external contribution of 50. After the contribution, the account grows to 180 by year-end. The time-weighted return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

An account begins with 100. It is worth 105 after one year, at which time 50 is withdrawn. One year later the account is worth 60. The annual money-weighted return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

Using the sample covariance convention, Asset A returns are 4%, 8%, and 12%, and Asset B returns are 2%, 6%, and 10%. The sample covariance is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A portfolio invests 50% in Asset A and 50% in Asset B. Asset A has standard deviation 10%, Asset B has standard deviation 20%, and the correlation is 0.60. The portfolio standard deviation is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A manager reports an arithmetic mean return that is higher than the geometric mean return over the same period. The most likely explanation is that:

Portfolio Management

Portfolio Risk and Return: Part I

Using the utility function U = E(R) - 0.5 A sigma\^2, with returns and risk in decimals and A = 4, which portfolio provides the highest utility?

Portfolio Management

Portfolio Risk and Return: Part I

Asset A has standard deviation of 15%, Asset B has standard deviation of 25%, and the correlation between A and B is 0.20. The weight of Asset A in the global minimum-variance two-asset portfolio is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

A portfolio holds 40% in Asset A and 60% in Asset B. Asset A has expected return 7% and standard deviation 12%; Asset B has expected return 11% and standard deviation 18%; their correlation is -0.25. The portfolio expected return and standard deviation are closest to:

Portfolio Management

Portfolio Risk and Return: Part I

Three asset pairs have correlations of -0.40, 0.20, and 0.85, respectively. Holding all else equal, the pair expected to provide the greatest diversification benefit is:

Portfolio Management

Portfolio Risk and Return: Part I

A portfolio starts the year at 100 and rises to 110 immediately before an external contribution of 50. It ends the year at 168. The time-weighted return is closest to:

Portfolio Management

Portfolio Risk and Return: Part I

An investor has risk aversion coefficient A = 3. A risky portfolio has expected return 10% and standard deviation 16%, and the risk-free rate is 2%. Among the following allocations to the risky portfolio, the investor's utility is highest at:

Portfolio Management

Portfolio Risk and Return: Part I

On a graph of expected return versus standard deviation for risky assets, the global minimum-variance portfolio is best described as the portfolio that: