Question

When two assets have +1 correlation...

The investment opportunity set is the line connecting the two
assets.

The assets’ covariance can be positive or negative.

Knowing that one asset’s return is above its expected return tells
you nothing about the other asset’s return.

The Minimum Variance Portfolio’s return is the risk free rate.

Answer #1

If the two assets are positively correlated, then the investment opportunity set is a line joining these two assets as the portfolio risk and return would simply be the linear combinations of these two assets as there is no benefit from diversification and if the return required increases the risk increases in proportion.

So, the correct option is option A .

When assets are positively correlated then the covariance is also positive. The assets which are positively correlated tends to move in the same directions.

The minimum variance portfolio return is not the risk free rate.

The efficient frontier of risky assets is
i) the portion of the investment opportunity set that lies above
the global minimum variance portfolio.
ii) the portion of the investment opportunity set that
represents the highest standard deviations.
iii) the portion of the investment opportunity set which
includes the portfolios with the lowest standard deviation.
iv) the set of portfolios that have zero standard deviation.
Group of answer choices
(i)
(iv)
(ii)
(i) and (ii) are true.
(iii)

Drew can design a risky portfolio based on two risky assets,
Origami and Gamiori. Origami has an expected return of 13% and a
standard deviation of 20%. Gamiori has an expected return of 6% and
a standard deviation of 10%. The correlation coefficient between
the returns of Origami and Gamiori is - 0.20 (negative 0.20). The
risk-free rate of return is 2%. Among all possible portfolios
constructed from Origami and Gamiori, what is the minimum
variance?

1. Two investment advisors are comparing performance. Advisor A
averaged a 15% return with a portfolio beta of 1.5, and advisor B
averaged a 15% return with a portfolio beta of 1.2. If the T-bill
rate was 5% and the market return during the period was 13%, which
advisor was the better stock picker?
A. Advisor A was better because he generated a larger alpha.
B. Advisor B was better because she generated a larger
alpha.
C. Advisor A was...

Two stocks (A and B) have a covariance of 23. When combined in
equal proportions into portfolio Y, the variance of the portfolio
is 30.25. Stock A has a variance twice that of Stock B. Another
portfolio (X) has an expected return of 17% and a variance of
50.
Additional Information
The expected return on the market is 15% and the risk free rate
is 7%
Covariance (A,Market) = 22 and Covariance (B,Market) = 15.5
Variance of the Market is...

Mark all the correct statements.
When two assets are not correlated, it is possible to create a
portfolio with them that will have zero standard deviation.
When two assets' correlation is +1, the minimum variance
portfolio (allowing no short selling) consists of 100% from the
asset with the lesser variance.
Even very risk averse investors prefer the Optimum Risky
Portfolio to the Minimum Variance Portfolio.
Given a 50-50% investment into two predetermined risky assets,
the lower their correlation, the lower...

Suppose there are only two risky assets in the world (or some
people are restricted to invest in only
two assets), the stock of an oil company with expected return equal
to 10% and a volatility of 30%,
and the stock of an alternative energy company with expected return
of -1% and volatility of 10%.
The covariance is equal to -0.01. a) What is the portfolio with
lowest volatility? b) What is the
expected return and volatility of this portfolio?...

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 are the CFO of a business and have the opportunity to
evaluate two different investment opportunities. Information
related to these investments follows:
Investment 1
Investment 2
Investment Cost
$ 800,000
$ 500,000
Salvage Value
$ 40,000
$ 50,000
Useful Life
8 years
15 years
Required Rate of Return
10%
10%
Sales
$ 450,000
$ 400,000
Variable Costs
$ 150,000
$ 175,000
Fixed Costs (excluding depreciation)
$ 100,000
$ 150,000
Tax Rate
35%
35%
Your company has a required rate...

Which of the following statements regarding a portfolio of two
risky assets (with almost equal weights) is true?
A.
For this portfolio, if investors do not invest in a risk-free
asset, the feasible set simply includes the upward curve starting
from the global minimum variance portfolio.
B.
A portfolio without a risk-free asset cannot earn a higher
return than a portfolio with risk-free assets if these two
portfolios have the same risk.
C.
If investors invest in a risk-free asset,...

(i)
The expected returns on two distinct
risky assets A and B are correlated and a portfolio consisting of A
and B has zero variance of expected return. What can be said about
the correlation between the expected returns of risky assets A and
B?
(ii)
An investor constructs an efficient
portfolio that invests 150% of his investment in the tangent
portfolio of risky asset and is short in the risky free asset for
the rest. What can be said...

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