Which of the following is a TRUE statement? A The tangent portfolio is the risky portfolio...
Which of the following is a TRUE statement?
|
A |
The tangent portfolio is the risky portfolio on the efficient frontier whose tangent line cuts the horizontal axis at the risk-free rate. |
|
B |
The new (or super) efficient frontier represents the portfolios composed of the risk-free rate and the tangent portfolio that offers the highest expected rate of return for any given level or risk. |
|
C |
The separation theorem states that the investment decision, (how to construct the portfolio of risky assets), is not separate from the financing decision, (how much should be invested or borrowed in the risk-free asset). |
|
D |
The market portfolio is a portfolio that contains some risky securities in the market. |
Homework Answers
The separation theorem states that the investment decision, (how to construct the portfolio of risky assets), is not separate from the financing decision, (how much should be invested or borrowed in the risk-free asset)
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Which of the following is a TRUE statement?
A
The tangent portfolio is the risky portfolio...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
In theory, which of these is a combination of securities that places the portfolio on the...
In theory, which of these is a combination of securities that places the portfolio on the efficient frontier and on a line tangent from the risk-free rate? Efficient market Market portfolio Probability distribution Stock market bubble
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case....
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point RF corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves II and I2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) The points on the line PRF MZ represent:...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case....
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point Pre corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves 11 and 12 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) Point A, where the line PRF MZ is...
15. Which of the following statements is True? When creating a complete portfolio by a risky...
15. Which of the following statements is True? When creating a complete portfolio by a risky portfolio and a risk-free asset, a higher allocation to the risky portfolio increases the Sharpe ratio. The lower the risk-free rate, the lower the Sharpe ratios of levered portfolios. With a positive and fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. Holding constant the risk premium of the risky portfolio, a higher risk-free...
22. Which of the following statements about the efficient frontier is least accurate? A. Portfolios falling...
22. Which of the following statements about the efficient frontier is least accurate? A. Portfolios falling on the efficient frontier are fully diversified. B. Investors will want to invest in the portfolio on the efficient frontier that offers the highest rate of return. C. The efficient frontier shows the relationship that exists between expected return and total risk in the absence of a risk-free asset.
The following graph shows the set of portfolio opportunities for a multiasset case. The point rrr...
The following graph shows the set of portfolio opportunities for a multiasset case. The point rrr corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves I and I 2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN Percent) RISK IPortfolio's standard deviation The points on the line PREMZ represent: Portfolios that are dominated...
(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum...
(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum variance point on the efficient frontier the maximum return point on the efficient frontier the tangency point of the capital market line and the efficient frontier the line with the steepest slope that connects the risk free rate to the efficient frontier
2. (Understanding optimal portfolio choice) Consider two risky assets, the expected return of asset one is...
2. (Understanding optimal portfolio choice) Consider two risky assets, the expected return of asset one is μ-0.1, the expected return of asset two is μ2-0.15, the risk or standard deviation of asset one is σ1-0.1, the risk or standard deviation of asset two is σ2-02. The two assets also happen to have zero correlation. An investor plans to build a portfolio by investing w of his investment to asset one and the rest of his investment to asset two. Calculate...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds...
3 Question 3 In a market are listed two risky assets whose returns are described by the following parameters HA=0.01. MB = 0.07, 01 = 0.2 and op = 0.12. The correlation among the securities is constant and equal to p=0.1. 1. Derive the equation for the frontier 2. Derive the minimum variance portfolio and the equation for the efficient frontier 3. Let's add a risk free asset among the possible investments with return r = 0.03 and derive the...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point RF corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves II and I2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) The points on the line PRF MZ represent:...
4. Investor equilibrium The following graph shows the set of portfolio opportunities for a multiasset case. The point Pre corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves 11 and 12 are indifference curves for a particular investor. EXPECTED RATE OF RETURN (Percent) 10 RISK (Portfolio's standard deviation) Point A, where the line PRF MZ is...
15. Which of the following statements is True? When creating a complete portfolio by a risky portfolio and a risk-free asset, a higher allocation to the risky portfolio increases the Sharpe ratio. The lower the risk-free rate, the lower the Sharpe ratios of levered portfolios. With a positive and fixed risk-free rate, doubling the expected return and standard deviation of the risky portfolio will double the Sharpe ratio. Holding constant the risk premium of the risky portfolio, a higher risk-free...
22. Which of the following statements about the efficient frontier is least accurate? A. Portfolios falling on the efficient frontier are fully diversified. B. Investors will want to invest in the portfolio on the efficient frontier that offers the highest rate of return. C. The efficient frontier shows the relationship that exists between expected return and total risk in the absence of a risk-free asset.
The following graph shows the set of portfolio opportunities for a multiasset case. The point rrr corresponds to a risk-free asset, the red curve BME is the efficient frontier, the shaded area under the efficient frontier represents the feasible set of portfolios of risky assets, and the yellow curves I and I 2 are indifference curves for a particular investor. EXPECTED RATE OF RETURN Percent) RISK IPortfolio's standard deviation The points on the line PREMZ represent: Portfolios that are dominated...
(Note: select all correct answers) The optimal risky portfolio can be identified by finding the minimum variance point on the efficient frontier the maximum return point on the efficient frontier the tangency point of the capital market line and the efficient frontier the line with the steepest slope that connects the risk free rate to the efficient frontier
2. (Understanding optimal portfolio choice) Consider two risky assets, the expected return of asset one is μ-0.1, the expected return of asset two is μ2-0.15, the risk or standard deviation of asset one is σ1-0.1, the risk or standard deviation of asset two is σ2-02. The two assets also happen to have zero correlation. An investor plans to build a portfolio by investing w of his investment to asset one and the rest of his investment to asset two. Calculate...
29) Which of the following statements is FALSE? A) The Sharpe ratio of the portfolio tells us how much our expected retun will increase for a given increase in volatility B) We should continue to trade securities until the expected r return of each security equals its required return. Q) The required return is the expected return that is necessary to compensate for the risk that an investment will contribute to the portfolio. D) If security is required retun exceeds...
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