Portfolio Management MCQs

Welcome to our comprehensive collection of Multiple Choice Questions (MCQs) on Portfolio Management, a fundamental topic in the field of IC 89 Management Accounting. Whether you're preparing for competitive exams, honing your problem-solving skills, or simply looking to enhance your abilities in this field, our Portfolio Management MCQs are designed to help you grasp the core concepts and excel in solving problems.

In this section, you'll find a wide range of Portfolio Management mcq questions that explore various aspects of Portfolio Management problems. Each MCQ is crafted to challenge your understanding of Portfolio Management principles, enabling you to refine your problem-solving techniques. Whether you're a student aiming to ace IC 89 Management Accounting tests, a job seeker preparing for interviews, or someone simply interested in sharpening their skills, our Portfolio Management MCQs are your pathway to success in mastering this essential IC 89 Management Accounting topic.

Note: Each of the following question comes with multiple answer choices. Select the most appropriate option and test your understanding of Portfolio Management. You can click on an option to test your knowledge before viewing the solution for a MCQ. Happy learning!

So, are you ready to put your Portfolio Management knowledge to the test? Let's get started with our carefully curated MCQs!

Portfolio Management MCQs | Page 3 of 10

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Q21.
What is Market Risk in the context of Systematic Risks?

a.

Risk due to inflation or rise in prices

b.

Risk arising from fluctuations in the prices of securities and equity shares

c.

Risk associated with changes in interest rates

d.

Risk specific to a particular industry

Discuss
Answer: (b).Risk arising from fluctuations in the prices of securities and equity shares Explanation:Market Risk is a component of Systematic Risks, arising due to fluctuations in the prices of securities and equity shares traded in the market.
Q22.
How does Interest Rate Risk affect fixed income-bearing securities?

a.

Increases market price when interest rates rise

b.

Has no impact on the market price

c.

Decreases market price when interest rates rise

d.

Causes fixed income securities to be sold at par value

Discuss
Answer: (c).Decreases market price when interest rates rise Explanation:Interest Rate Risk arises due to changes in interest rates and causes the market price of existing fixed income-bearing securities to fall when interest rates rise.
Q23.
What is Purchasing Power Risk associated with in Systematic Risks?

a.

Fluctuations in the prices of securities

b.

Adverse legislation and regulatory climate

c.

Inflation or rise in prices leading to increased costs

d.

Changes in the interest rate structure

Discuss
Answer: (c).Inflation or rise in prices leading to increased costs Explanation:Purchasing Power Risk in Systematic Risks arises due to inflation or rise in prices leading to increased costs of production, lower margins, wage rises, and profit squeezing.
Q24.
What is Unsystematic Risk associated with in portfolio management?

a.

Risk common to an entire class of assets

b.

Risk unique to a particular company or industry

c.

Risk arising from market fluctuations

d.

Risk related to changes in interest rates

Discuss
Answer: (b).Risk unique to a particular company or industry Explanation:Unsystematic Risk refers to risk unique to a particular company or industry, which can be avoided through diversification.
Q25.
What is Business Risk in the context of Unsystematic Risks?

a.

Risk associated with changes in interest rates

b.

Risk related to default on payments

c.

Risk of poor business performance due to various factors

d.

Risk arising from fluctuations in the prices of securities

Discuss
Answer: (c).Risk of poor business performance due to various factors Explanation:Business Risk in Unsystematic Risks is the risk of poor business performance, caused by factors like competition, technological changes, changes in consumer preferences, and more.
Q26.
What does Financial Risk mainly include in Unsystematic Risks?

a.

Default Risk

b.

Market Risk

c.

Risks associated with different financing methods

d.

Interest Rate Risk

Discuss
Answer: (c).Risks associated with different financing methods Explanation:Financial Risk in Unsystematic Risks includes risks associated with different financing methods adopted by the company, such as high leverage leading to debt servicing problems or short-term liquidity issues.
Q27.
What is Default Risk in Unsystematic Risks?

a.

Risk of poor business performance

b.

Risk arising from market fluctuations

c.

Risk related to changes in interest rates

d.

Risk from the borrower not paying interest and/or principal on time

Discuss
Answer: (d).Risk from the borrower not paying interest and/or principal on time Explanation:Default Risk in Unsystematic Risks refers to the risk arising from the borrower not paying interest and/or principal on time.
Q28.
What is the primary focus of the Traditional Approach in portfolio management?

a.

Predicting future stock prices

b.

Maximizing investor's wealth subject to risk

c.

Random behavior of stock market prices

d.

Identifying over or under valued securities

Discuss
Answer: (b).Maximizing investor's wealth subject to risk Explanation:The Traditional Approach in portfolio management is mainly concerned with maximizing the investor's wealth subject to risk, considering the investor's profile, portfolio objectives, investment strategy, diversification, and individual investment selection.
Q29.
What does the Random Walk Theory propose about stock market prices?

a.

Predictable behavior of stock prices

b.

Unpredictable behavior of stock prices

c.

Direct relationship between present and future prices

d.

Consistent identification of over or under valued securities

Discuss
Answer: (b).Unpredictable behavior of stock prices Explanation:The Random Walk Theory suggests that the behavior of stock market prices is unpredictable, and there is no relationship between present and future prices of shares.
Q30.
According to the Efficient Market Theory, what does an efficient market imply?

a.

Market prices are unrelated to intrinsic value

b.

Intrinsic value is consistently identified over time

c.

Deviations of market price from intrinsic value are systematic

d.

Market participants do not act on all relevant information

Discuss
Answer: (a).Market prices are unrelated to intrinsic value Explanation:An efficient market, according to the Efficient Market Theory, implies that the market price of a security is an unbiased estimate of its intrinsic value, and deviations from intrinsic value are random.
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