What are the two types of risk a market participant is exposed to when purchasing a stock?
Systematic risk and unsystematic risk
Market risk and industry risk
Inflation risk and interest rate risk
Business risk and financial risk
Qn. 1 / 10
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What does variance represent in the context of stock returns?
The deviation of a stock's return from its average return
The total return of a stock over a specific period
The highest possible return a stock can achieve
The lowest possible return a stock can achieve
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What is the definition of covariance in stock analysis?
The variance of a stock's return with respect to another stock's return
The average return of a group of stocks
The total risk of a portfolio of stocks
The risk-free rate of return
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What is the size of a variance-covariance matrix for a portfolio with 'k' stocks?
k x k
n x k
k x n
n x n
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What does the value representing the covariance of a stock with itself signify?
The variance of the stock
The average return of the stock
The correlation of the stock with the market
The beta of the stock
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What is the primary limitation of the variance-covariance matrix in stock analysis?
It is difficult to interpret due to the small numerical values
It does not account for systematic risk
It is only applicable to portfolios with a small number of stocks
It requires complex mathematical calculations
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What is the key objective of calculating the correlation matrix in portfolio management?
To estimate portfolio variance
To determine the optimal asset allocation
To identify undervalued stocks
To predict future stock prices
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What is the definition of an excess return matrix?
The difference between a stock's daily return and its average return
The total return of a stock over a specific period
The risk-free rate of return
The market risk premium
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What does 'n' represent in the formula for calculating the variance-covariance matrix?
The number of observations in the dataset
The number of stocks in the portfolio
The average return of the portfolio
The risk-free rate of return
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What type of matrix is formed by interchanging the rows and columns of an original matrix?
Transpose matrix
Inverse matrix
Identity matrix
Diagonal matrix
Qn. 10 / 10
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