SIE Exam Question 172: Answer and Explanation

Question: 172

Which of the following statements is false regarding modern portfolio theory?

• A. It is a scientific approach to measuring risk.
• B. It guarantees against long-term losses.
• C. It involves calculating projected returns of various portfolio combinations.
• D. It is the concept of minimizing risk by combining volatile and price-stable investment in a single portfolio.

Correct Answer: B

Explanation:

The modern portfolio theory does not guarantee against long-term losses.