Question

Question 20. Please, find the correct statement on the Markowitz (Modern) Portfolio Theory.

1. The weight of risk-free asset can never be negative

2. Inascenariowithnorisk-freeasset,allinvestorswouldchooseaportfolioontheefficient frontier

3. The standard deviation of the risk-free asset is always 1

4. All investors would always choose the portfolio with the minimal standard deviation

Answer 1

Question 20. Please, find the correct statement on the Markowitz (Modern) Portfolio Theory.

1. The weight of risk-free asset can never be negative

2. In a scenario with no risk-free asset, all investors would choose a portfolio on the efficient frontier

3. The standard deviation of the risk-free asset is always 1

4. All investors would always choose the portfolio with the minimal standard deviation

Option 2 is correct.

Depending upon the risk tolerence of individual investors, when no risk-free asset is available, all investors would choose a portfolio on the efficient frontier.

Option 1 is incorrect because the weight of risk-free asset can be negative. Negative weight indicates borrowing money.

Option 3 is incorrect because The standard deviation of the risk-free asset is always 0

Option 4 is incorrect because all investors would always choose the portfolio on the efficient portfolio, not the one with minimum standard deviation.