Question

Which of the following statements about a portfolio is(are) correct A portfolio of two assets with perfectly positively correlated returns will have an overall risk below that of the least risky asset B. A portfolio of two assets with perfectly negatively correlated

Answer #1

FALSE: A portfolio of two assets with perfectly positively correlated returns will have an overall risk below that of the least risky asset.

REASON:

A portfolio of two assets with perfectly positively correlated returns will have a weighted average risk Wa*Sd(a)+Wa*Sd(b) (which lies in between the risk of the two assets).

TRUE:

A portfolio of two assets with perfectly negatively correlated will
have an overall risk below that of the least risky asset.

REASON: A portfolio of two assets with perfectly positively correlated returns will have a standard deviation = Wa*Sd(a)-Wa*Sd(b)

Portfolio standard deviation will be below due to the negative sign in the equation above.

In a portfolio that contains two assets it is possible that
there is no benefit to diversification from moving from a single
asset to two assets. Why can this happen?
Select one:
a. It happens if returns on the assets in the portfolio are
perfectly positively correlated.
b. It happens if each of the assets is a common share.
c. It happens if returns on one asset are negatively correlated
with returns on the other asset.
d. The statement is...

Assume you are considering a portfolio containing two assets, L
and M. Asset L will represent 45% of the dollar value of the
portfolio, and asset M will account for the other 55%. The
projected returns over the next six years, 2018–2023, for each of
these assets are summarized in the following table.
Projected Return (%)
Year
Asset L
Asset M
2018
14%
21%
2019
13%
18%
2020
15%
15%
2021
17%
15%
2022
16%
11%
2023
20%
11%
a.Use...

1.Which of the follwing statements about portfolio risk are true.
a) the riskiness of a portfolio is the weighted average of the
imdividual assets' standard deviations
b) two stocks can be individually quite risky but when they
are combined to form a portfolio it is possible that they are not
risky at all
c) diversification only wants to reduce risk if you portfolios
and fix it perfectly positively related stocks (securities)
d) all of the above
2. which of the...

Which of the following is FALSE?
Select one:
a. A portfolio combining two assets with less than perfectly
positive correlation can reduce total risk to a level below that of
either of the components.
b. A firm has high sales when the economy is expanding and low
sales during a recession. This firm's overall risk will be higher
if it invests in another product which is counter cyclical.
c. A portfolio that combines two assets having perfectly positively
correlated returns...

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,...

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...

A portfolio of two perfectly _________ stocks has no
diversification effect Group of answer choices
uncorrelated
negatively correlated
positively correlated
risk-free

A and B are two risky assets. Their expected returns are E[Ra],
E[Rb], and their standard deviations are σA,σB. σA< σB and asset
A and asset B are positively correlated (ρA, B > 0). Suppose
asset A and asset B are comprised in a portfolio with positive
weight in both and please check all the correct answers below.
() There are only gains from diversification if ρA, B is not
equal to 1.
() The portfolio may have a zero...

(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...

If your objective is to reduce overall portfolio risk as much as
possible, which stocks should you put into your portfolio?
Multiple Choice
Stocks that have the highest expected returns
Stocks with returns that are positively correlated
Stocks with returns that are not correlated
Stocks with returns that have the highest specific risk

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