Corporate Finance (FIN 201) Portfolio Risk Practice Problems (Variance, Covariance, Beta, CAPM)
New York University
Corporate Finance (FIN 201) | Practice Problems

Overview
A FIN 201 practice packet for portfolio risk and return: compute expected return, variance, covariance/correlation, and use beta/CAPM logic in common exam-style questions.

Key topics
•expected return from scenario probabilities
•variance and standard deviation intuition (what changes risk)
•covariance and correlation and why diversification works
•two-asset portfolio variance with weights (high level computation)
•beta and CAPM basics (SML, risk-free, market premium) and what exam questions ask

Suggested study tasks
•compute expected return for 10 probability tables and interpret
•compute variance and standard deviation for 8 mini distributions
•compute covariance/correlation for 6 paired-return tables
•compute risk for 6 two-asset portfolios with different weights and interpret diversification
•use CAPM to solve 10 "required return" prompts given beta and market premium

Common pitfalls
•treating correlation as causation
•mixing covariance units with correlation scale
•forgetting weights must sum to 1 in portfolio problems
•using beta as "risk" without specifying relative-to-market
•plugging CAPM inputs with inconsistent time periods (monthly vs annual)