Question

18. Which of the following statements about the minimum variance portfolio of all risky securities are valid? (Assume short sales are allowed.)

i. Its variance must be lower than those of all other securities or portfolios.

ii. Its expected return can be lower than the risk-free rate.

iii. It may be the optimal risky portfolio.

iv. It must include all individual securities.

19. Assume that expected returns and standard deviations for all securities (including the risk-free rate for borrowing and lending) are known. In this case all investors will have the same optimal risky portfolio. i. True ii. False

20. The standard deviation of the portfolio is always equal to the weighted average of the standard deviations of the assets in the portfolio. i. True ii. False

Answer 1

18. When there will be a minimum variance portfolio of all risky securities then the variance must be lower than those of all the other securities of the portfolios, because it will always be trying to reduce the overall variance and it can lead to variance of securities lower than those of all other securities or portfolios.

All the other options are false

Correct answer will be option (I) its variance must be lower than those of all other securities or portfolio

2