Question

A risk free asset is an asset with

Select one:

a. A variance of -1

b. A variance of 0

c. A variance of 1

d. None of the above

Answer #1

Since a risk-free asset has a certain future return and the return of risk-free assest does not vary much or if it varies, then its variation is close to 0. The example of risk-free assests is Treasuries. Treasuries are said to be risk-free because they are backed by the U.S. government. This is safe because the return on risk-free assets is very close to the current interest rate.

Hence it can be said that a risk-free asset is an asset with the variance of 0. It means the return on risk-free assets does not vary.

Hence **option b** is the correct answer.

Option b; **A variance of 0.**

18. An investor uses a risky asset A and a risk free asset to
build a complete portfolio, and rf = 3%, E(rA) = 7%, and σA = 12%.
Which one of the following portfolios B, C, D, and E can NOT be on
the CAL?
(a) E(rB) = 5%, and σB = 6%. (b) E(rC) = 6%, and σC = 9%. (c)
E(rD) = 8%, and σD = 15%. (d) E(rE) = 9%, and σE = 20%.
19. Which...

a. If variance of asset A is 0.04 and variance of asset B is
0.02, what is the correlation between the two assets? Assume
covariance between the 2 assets to be 0.015. Show how you found the
values.
b. Suppose a portfolio has expected return of 15% and volatility
of 30%. How can you combine this portfolio with the risk-free asset
to create a portfolio with 10% expected return? Risk-free asset has
expected return of 3%. Show how you found the...

You have one risk-free asset and one risky stock in your
portfolio. The risk-free asset has an expected return of 5.8
percent. The risky stock has a beta of 1.8 and an expected return
of 12.3 percent. What's the expected return on the portfolio if the
portfolio beta is .958?

5.A short sale involves:
Select one:
a. hedging against an increase in an asset price
b. speculating that an asset price will increase
c. hedging against a drop in an asset price
d. speculating that an asset price will decrease
e. selling an asset that the investor owns
13.Securities traded in the external market are distinguished
by:
Select one:
a. Being accessible only to foreign investors.
b. Being offered simultaneously to investors in a number of
countries.
c. Being issued...

Q1.Suppose bond (a) is a risk free bond and pays 3%, suppose
also that bond (b) has a default risk with probability 5%; what
shall be the value of the risk premium on bond (b) Select one:
a. 5.4%.
b. none of the above
c. 3.1%.
d. 2.3%.
e. 4.5%.
Q2. In what way does unemployment duration affect the probabilty
of re-employment Select one:
a. they are unrelated
b. neutral
c. negatively
d. positively
e. either positive or negative c....

Which of the following is not true?
Select one:
a.
If the risk free rate is 2% and the market risk premium is 6%, then
the expected return is 14% for a security with a beta of 2.
b. If a project’s cash flows are uncertain then the present
value discount rate should be higher than the risk free rate.
c.
The beta of a capital budgeting project should be appropriate to
its risk.
d.
All of THESE are true

To maximize your utility what would be your allocation in the
risk-free asset?
risk-free asset with a return of 15%, Standard Deviation of 40%,
and risk-free asset with risk-free= 5%, Pab= -1

Design a complete portfoilio with the Risky asset S and risk
free asset that yields the expected return of 10%. What is the
weight you invest on Asset S?
Asset S: E(r)=15% Standard Deviation=20%
Risk free: E(r)= 6%
A. 44.4
B.37.9
C.50.6
D. 41.09

The risk-free asset has a return of 2.84%. The risky asset has a
return of 10.06% and has a variance of 4.12%. Karen has the
following utility function: LaTeX:
U=a\times\ln\left(r_c\right)-b\times\sigma_cU = a × ln ( r c ) −
b × σ c, with a=5.1 and b=5.2. LaTeX: r_cr c and LaTeX: \sigma_cσ c
denote the return and the risk of the combined portfolio. Compute
the optimal to be invested in the risky asset.

In a normally distributed quantitative trait, the variance
determines:
Select one:
a. number of modes
b. median of the distribution
c. mode of the distribution
d. skew about the mean
e. none of these

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