The correlation coefficient between the efficient portfolio and the risk-free asset is Multiple Choice +1.0. −1.0....
The correlation coefficient between the efficient portfolio and the risk-free asset is
Multiple Choice
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+1.0.
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−1.0.
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0.0.
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Further information is needed.
Homework Answers
Option '3' is correct
'0' is the answer
The correlation coefficient between the efficient portfolio and the risk free asset is zero. Correlation coefficient measures the degree to which the returns of two stocks move together.
Add Answer to:
The correlation coefficient between the efficient portfolio and
the risk-free asset is
Multiple Choice
+1.0.
−1.0....
MULTIPLE CHOICE Q In the absence of a risk free asset, which of the following ranking...
MULTIPLE CHOICE Q In the absence of a risk free asset, which of the following ranking rule is needed to locate the optimal portfolio of risky assets? A. The portfolio with the largest utility is preferred. B. The portfolio with the largest reward to variability ratio is preferred. C. For a given level of expected return, the portfolio with the lowest level of risk is preferred. D. For a given level of risk, the portfolio with the largest expected return...
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient...
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient frontier leads to the formation of a: security market line, which shows that investors will only prefer portfolios that lie on the top half of the minimum variance frontier capital market line, which shows that investors will invest in a combination of the riskless asset and the tangency portfolio capital market line, which shows that investors will invest all their money into the tangency...
The universe of available securities includes two risky stocks A and B, and a risk-free asset....
The universe of available securities includes two risky stocks A and B, and a risk-free asset. The data for the universe are as follows: Assets Expected Return Standard Deviation Stock A 6% 25% Stock B 12% 42% Risk free 5% 0 The correlation coefficient between A and B is -0.2. The investor maximizes a utility function U=E(r)−σ2 (i.e. she has a coefficient of risk aversion equal to 2). Assume that to maximize his utility when there is no available risk-free...
A portfolio that combines the risk-free asset and the market portfolio has an expected return of...
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 9 percent and a standard deviation of 16 percent. The risk-free rate is 4.1 percent and the expected return on the market portfolio is 11 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .38 correlation with the market portfolio and a standard deviation of 60 percent?
Term Answer Description Risk A. The risk of an asset when it is the only asset...
Term Answer Description Risk A. The risk of an asset when it is the only asset in an investor's portfolio. Expected rate of return That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Beta coefficient This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Market risk The...
You own a portfolio equally invested in a risk-free asset and two stocks. If one of...
You own a portfolio equally invested in a risk-free asset and two stocks. If one of the stocks has a beta of 1 and the total portfolio is equally as risky as the market, what must the beta be for the other stock in your portfolio? Multiple Choice 1.00 2.10 1.90 1.05 2.00
It is possible to combine two securities to create a risk-free portfolio if the correlation between...
It is possible to combine two securities to create a risk-free portfolio if the correlation between their returns is a. +1 b. 0 c. +1 or −1 d. +1, 0, or−1 The following type of portfolio requires no trading: a. buy and hold b. re-balanced c. equal weighted d. optimal
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...
efficient fronteir and portfolio choice
Problem 5 (Efficient frontier and portfolio choice)Consider the following expected returns, volatilities, and correlations:StockExpected returnStandard deviationCorrelation with Duke EnergyCorrelation with MicrosoftCorrelation with Wal-MartDuke Energy14%6%1-10Microsoft44%24%-110.7Wal-Mart23%14%00.71(a) Consider a portfolio consisting of only Duke Energy and Microsoft. The percentage of your investment (portfolio weights) that you would place in Microsoftstock to achieve a risk-free investment should be closest to:(1) 15%(2) 4%(3) 23%(4) 10%(b) The expected return of a portfolio that is equally-invested in Duke Energy and Microsoft is closest to:(1) 28%(2) 29%(3) 24%(4)...
You have a $9,000 portfolio which is invested in stocks A, B, and a risk-free asset....
You have a $9,000 portfolio which is invested in stocks A, B, and a risk-free asset. $4,000 is invested in stock A. Stock A has a beta of 1.84 and stock B has a beta of 0.68. How much needs to be invested in stock B if you want a portfolio beta of.95? Multiple Choice $0 $1,750 $5,000 $3,279 $7,279
Question 1 1 pts The combination of a risk-free asset and a portfolio on the efficient frontier leads to the formation of a: security market line, which shows that investors will only prefer portfolios that lie on the top half of the minimum variance frontier capital market line, which shows that investors will invest in a combination of the riskless asset and the tangency portfolio capital market line, which shows that investors will invest all their money into the tangency...
A portfolio that combines the risk-free asset and the market portfolio has an expected return of 9 percent and a standard deviation of 16 percent. The risk-free rate is 4.1 percent and the expected return on the market portfolio is 11 percent. Assume the capital asset pricing model holds. What expected rate of return would a security earn if it had a .38 correlation with the market portfolio and a standard deviation of 60 percent?
Term Answer Description Risk A. The risk of an asset when it is the only asset in an investor's portfolio. Expected rate of return That portion of an investment's risk calculated as the difference between its total risk and its firm-specific risk. Beta coefficient This model determines the appropriate required return on a security as the sum of the market's risk-free rate and a risk premium based on the market's risk premium and the security's beta coefficient. Market risk The...
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...
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