FIN 360 Portfolio Management Exam
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
Question 1. What is the primary objective of portfolio management?
A. Eliminate all investment risk
B. Maximize return regardless of risk
C. Achieve the investor’s objectives within an acceptable level of risk
D. Invest only in government securities
Answer: C. Achieve the investor’s objectives within an acceptable level of
risk
Rationale: Portfolio management balances expected return and risk while
considering the investor’s objectives, constraints, and preferences.
,Question 2. Which measure represents the average return expected from an
investment based on different possible outcomes?
A. Variance
B. Standard deviation
C. Expected return
D. Beta
Answer: C. Expected return
Rationale: Expected return is the probability-weighted average of possible
investment returns.
Question 3. What does standard deviation measure in portfolio
management?
A. Systematic return
B. Expected dividend income
C. Dispersion of returns around their mean
D. Market capitalization
Answer: C. Dispersion of returns around their mean
Rationale: Standard deviation measures the volatility of returns and is
commonly used as a measure of total investment risk.
,Question 4. Which type of risk cannot generally be eliminated through
diversification?
A. Firm-specific risk
B. Unsystematic risk
C. Diversifiable risk
D. Systematic risk
Answer: D. Systematic risk
Rationale: Systematic risk affects the overall market and cannot be
eliminated simply by holding a diversified portfolio.
Question 5. What is unsystematic risk?
A. Market-wide risk
B. Inflation risk affecting all assets
C. Risk specific to a company or industry
D. Interest-rate risk affecting the entire economy
Answer: C. Risk specific to a company or industry
Rationale: Unsystematic risk arises from firm-specific or industry-specific
factors and can be reduced through diversification.
, Question 6. Which portfolio characteristic generally improves as more
imperfectly correlated securities are added?
A. Systematic risk
B. Inflation exposure
C. Diversification
D. Market risk
Answer: C. Diversification
Rationale: Combining assets with less-than-perfect correlation can reduce
portfolio-specific risk.
Question 7. A correlation coefficient of +1 between two securities means:
A. They move in exactly opposite directions
B. They have no relationship
C. They move perfectly together
D. One security has no risk
Answer: C. They move perfectly together
Rationale: A correlation of +1 indicates perfect positive correlation,
meaning the securities move together in the same direction proportionally.
Practice Questions And Correct Answers
(Verified Answers) Plus Rationales 2027
Q&A | Instant Download Pdf
Question 1. What is the primary objective of portfolio management?
A. Eliminate all investment risk
B. Maximize return regardless of risk
C. Achieve the investor’s objectives within an acceptable level of risk
D. Invest only in government securities
Answer: C. Achieve the investor’s objectives within an acceptable level of
risk
Rationale: Portfolio management balances expected return and risk while
considering the investor’s objectives, constraints, and preferences.
,Question 2. Which measure represents the average return expected from an
investment based on different possible outcomes?
A. Variance
B. Standard deviation
C. Expected return
D. Beta
Answer: C. Expected return
Rationale: Expected return is the probability-weighted average of possible
investment returns.
Question 3. What does standard deviation measure in portfolio
management?
A. Systematic return
B. Expected dividend income
C. Dispersion of returns around their mean
D. Market capitalization
Answer: C. Dispersion of returns around their mean
Rationale: Standard deviation measures the volatility of returns and is
commonly used as a measure of total investment risk.
,Question 4. Which type of risk cannot generally be eliminated through
diversification?
A. Firm-specific risk
B. Unsystematic risk
C. Diversifiable risk
D. Systematic risk
Answer: D. Systematic risk
Rationale: Systematic risk affects the overall market and cannot be
eliminated simply by holding a diversified portfolio.
Question 5. What is unsystematic risk?
A. Market-wide risk
B. Inflation risk affecting all assets
C. Risk specific to a company or industry
D. Interest-rate risk affecting the entire economy
Answer: C. Risk specific to a company or industry
Rationale: Unsystematic risk arises from firm-specific or industry-specific
factors and can be reduced through diversification.
, Question 6. Which portfolio characteristic generally improves as more
imperfectly correlated securities are added?
A. Systematic risk
B. Inflation exposure
C. Diversification
D. Market risk
Answer: C. Diversification
Rationale: Combining assets with less-than-perfect correlation can reduce
portfolio-specific risk.
Question 7. A correlation coefficient of +1 between two securities means:
A. They move in exactly opposite directions
B. They have no relationship
C. They move perfectly together
D. One security has no risk
Answer: C. They move perfectly together
Rationale: A correlation of +1 indicates perfect positive correlation,
meaning the securities move together in the same direction proportionally.
