{"id":53424,"date":"2024-04-15T23:53:47","date_gmt":"2024-04-15T23:53:47","guid":{"rendered":"https:\/\/exam.pscnotes.com\/mcq\/?p=53424"},"modified":"2024-04-15T23:53:47","modified_gmt":"2024-04-15T23:53:47","slug":"type-of-relationship-exists-between-an-expected-return-and-risk-of-portfolio-is-classified-as","status":"publish","type":"post","link":"https:\/\/exam.pscnotes.com\/mcq\/type-of-relationship-exists-between-an-expected-return-and-risk-of-portfolio-is-classified-as\/","title":{"rendered":"Type of relationship exists between an expected return and risk of portfolio is classified as"},"content":{"rendered":"

[amp_mcq option1=”non-linear” option2=”linear” option3=”fixed and aggregate” option4=”non-fixed and non-aggregate” correct=”option1″]<\/p>\n

The correct answer is A. non-linear.<\/p>\n

The relationship between expected return and risk of a portfolio is non-linear. This means that as the risk of a portfolio increases, the expected return does not increase linearly. In other words, there is a point at which the additional risk does not provide a corresponding increase in expected return. This is known as the point of diminishing returns.<\/p>\n

There are a number of reasons why the relationship between expected return and risk is non-linear. One reason is that investors are risk-averse. This means that they are willing to accept a lower expected return in exchange for a lower level of risk. Another reason is that there are limits to the amount of risk that can be diversified away. This means that as a portfolio becomes more risky, it becomes more difficult to reduce the overall risk through diversification.<\/p>\n

The non-linear relationship between expected return and risk has a number of implications for investors. One implication is that investors should not simply focus on maximizing expected return. They should also consider the level of risk that they are comfortable with. Another implication is that investors should not try to eliminate all risk from their portfolios. Some level of risk is necessary in order to achieve a higher expected return.<\/p>\n

The non-linear relationship between expected return and risk is a complex topic. However, it is an important concept for investors to understand. By understanding this concept, investors can make more informed decisions about their investment portfolios.<\/p>\n

Here is a brief explanation of each option:<\/p>\n