10 terms

A risk-averse investor would prefer a portfolio of the Rf and which of these two assets:

E(Ra) = 15% with reward to variability ratio of .4

E(Rb) = 20% with reward to variability ratio of .3

E(Ra) = 15% with reward to variability ratio of .4

E(Rb) = 20% with reward to variability ratio of .3

Asset A

An investor's degree of risk aversion will determine his _____.

mix of risk-free asset and optimal risky asset

The variance of a portfolio of risky securities is _____.

the weighted sum of the securities' covariances

_____ is a true statement regarding the variance of risky portfolios.

the degree to which the portfolio variance is reduced depends on the degree of correlation between securities.

The term efficient frontier refers to the set of portfolios that _____.

yield the greatest return for a given risk level AND involve the least risk for a given level of return

Consider an investment opportunity set formed with two securities that are perfectly negatively correlated. The global minimum variance portfolio has a standard deviation that is always _____.

0

Rational risk-averse investors will always prefer portfolios _____.

located on the capital market line to those located on the efficiency frontier.

The optimal risky portfolio can be identified by finding _____.

the tangency point of the capital market line and the efficient frontier

What is the correlation coefficient between the returns on A and B if their covariance is 0.03; SDa= 0.1 SDb= 0.5

.60

Adding additional risky assets to the investment opportunity set will generally move the efficient frontier _____ and to the _____.

Up and Left