According to Modern Portfolio Theory, how is the extra risk from holding a single security rewarded?
Explanation
Modern Portfolio Theory suggests that since specific risk can be eliminated through diversification, investors should not expect compensation for bearing it.
Other questions
What does the 'portfolio perspective' primarily refer to in the context of investing?
During a financial crisis, what typically happens to the correlations between asset returns?
Which metric is defined as the ratio of the standard deviation of the portfolio to the standard deviation of a security?
What is the primary output of the 'Planning' step in the portfolio management process?
Which type of analysis involves looking at macro factors to determine asset allocation?
What is a 'Foundation' in the context of institutional investors?
Which of the following best describes the risk tolerance and liquidity needs of a Bank?
What is the typical investment horizon for a Life Insurance company?
In a Defined Contribution (DC) pension plan, who assumes the investment risk?
In a Defined Benefit (DB) pension plan, the benefit is usually based on what factors?
Which type of firm is considered a 'Buy-side' firm?
What is a 'Multi-boutique' firm?
How is the Net Asset Value (NAV) of a mutual fund calculated?
If a fund has net assets of 100 million USD and 5 million shares outstanding, what is the NAV?
Which statement best describes an 'Open-end' fund?
What characterizes a 'Closed-end' fund?
What is the difference between 'No-load' and 'Load' funds?
Money market funds invest primarily in which type of securities?
Which mutual funds are described as 'passively managed'?
Which feature is unique to Exchange-Traded Funds (ETFs) compared to open-end index funds?
How do ETF share prices relate to their Net Asset Value (NAV)?
What is a 'Separately Managed Account' (SMA)?
Which statement regarding Hedge Funds is correct?
What is the strategy of a 'Long/short fund'?
What is the primary characteristic of 'Equity market-neutral funds'?
Which hedge fund strategy involves investing in response to one-time corporate events like mergers?
What do Global Macro funds speculate on?
What is the goal of 'Convertible bond arbitrage funds'?
How do 'Buyout funds' (Private Equity) typically acquire companies?
What distinguishes Venture Capital funds from Buyout funds?
In the context of Private Equity, what is the ultimate goal for Venture Capital investments?
Which step in the portfolio management process involves 'rebalancing the portfolio periodically'?
What is the primary risk measurement used in Modern Portfolio Theory as a proxy for volatility?
Which investor type is described as having a 'Short' investment horizon and 'High' liquidity needs?
What does a 'Fixed-income arbitrage fund' attempt to profit from?
Which pooled investment vehicle is most likely to produce less capital gains liability compared to open-end index funds?
Sovereign wealth funds are best categorized as which type of investor?
Which of the following describes 'Risk tolerance' for an Endowment?
What does 'Full-service asset managers' offer?
A 'Specialist asset manager' focuses on what?
What is the typical minimum investment level for Hedge Funds?
Which mutual fund type invests in equity/preferred stocks?
If an investor wants a portfolio that simply tracks the S&P 500, which fund type should they choose?
What is the key difference between Property & Casualty (P&C) insurance and Life insurance regarding investment horizon?
Which entity typically has 'High' liquidity needs to pay interest?
Calculate the Diversification Ratio if the portfolio standard deviation is 10 percent and the weighted average standard deviation of individual securities is 20 percent.
What implies that a 'Defined Benefit' plan employer assumes investment risk?
Which step in the portfolio management process involves 'monitoring investor's preferences'?
Which fund type typically has a 'spending level' as its primary income need?