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ch08 - Chapter 8 PORTFOLIO SELECTION Multiple Choice...

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Chapter 8 PORTFOLIO SELECTION Multiple Choice Questions Building a Portfolio Using Markowitz Principles 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. (c, easy) 2. Under the Markowitz model, investors: (b, moderate) 3. Which of the following is not one of the assumptions of portfolio theory? (d, moderate) 4. The Markowitz model assumes most investors are: (a, easy) Chapter Eight Portfolio Selection 94
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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. (b, difficult) 6. Which of the following statements regarding indifference curves is not true? (a, difficult) 7. The optimal portfolio for a risk-averse investor: (c, difficult) 8. Indifference curves reflect -------------- while the efficient set of portfolios represent ---------------. a. portfolio possibilities; investor preferences. a. investor preferences; portfolio possibilities. b. portfolio return; investor risk. c. investor preferences; portfolio return. (b, moderate) Chapter Eight Portfolio Selection 95
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