Q&A Hero

Q: The measure of risk in a Markowitz efficient frontier is A. specific risk. B. standard deviation of returns. C. reinvestment risk. D. beta.

Q: Portfolio theory as described by Markowitz is most concerned with A. the elimination of systematic risk. B. the effect of diversification on portfolio risk. C. the identification of unsystematic risk. D. active portfolio management to enhance returns.

Q: Which one of the following portfolios cannot lie on the efficient frontier as described by Markowitz? A. Only portfolio A cannot lie on the efficient frontier. B. Only portfolio B cannot lie on the efficient frontier. C. Only portfolio C cannot lie on the efficient frontier. D. Only portfolio D cannot lie on the efficient frontier. E. Cannot be determined from the information given.

Q: Which one of the following portfolios cannot lie on the efficient frontier as described by Markowitz? A. Only portfolio W cannot lie on the efficient frontier. B. Only portfolio X cannot lie on the efficient frontier. C. Only portfolio Y cannot lie on the efficient frontier. D. Only portfolio Z cannot lie on the efficient frontier. E. Cannot be determined from the information given.

Q: An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the capital allocation line must A. lend some of her money at the risk-free rate. B. borrow some money at the risk-free rate and invest in the optimal risky portfolio. C. invest only in risky securities. D. borrow some money at the risk-free rate, invest in the optimal risky portfolio, and invest only in risky securities E. Such a portfolio cannot be formed.

Q: Given an optimal risky portfolio with expected return of 6%, standard deviation of 23%, and a risk free rate of 3%, what is the slope of the best feasible CAL? A. 0.64 B. 0.39 C. 0.08 D. 0.13 E. 0.36

Q: Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The risk-free portfolio that can be formed with the two securities will earn a(n) _____ rate of return. A. 8.5% B. 9.0% C. 8.9% D. 9.9%

Q: Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10% and a standard deviation of 16%. B has an expected rate of return of 8% and a standard deviation of 12%. The weights of A and B in the global minimum variance portfolio are _____ and _____, respectively. A. 0.24; 0.76 B. 0.50; 0.50 C. 0.57; 0.43 D. 0.43; 0.57 E. 0.76; 0.24

Q: Consider the following probability distribution for stocks A and B: Which of the following portfolio(s) is(are) on the efficient frontier? A. The portfolio with 20 percent in A and 80 percent in B. B. The portfolio with 15 percent in A and 85 percent in B. C. The portfolio with 26 percent in A and 74 percent in B. D. The portfolio with 10 percent in A and 90 percent in B. E. A and B are both on the efficient frontier.

Q: Consider the following probability distribution for stocks A and B: The expected rate of return and standard deviation of the global minimum variance portfolio, G, are __________ and __________, respectively. A. 10.07%; 1.05% B. 8.97%; 2.03% C. 10.07%; 3.01% D. 8.97%; 1.05%

Q: Consider the following probability distribution for stocks A and B: Let G be the global minimum variance portfolio. The weights of A and B in G are __________ and __________, respectively. A. 0.40; 0.60 B. 0.66; 0.34 C. 0.34; 0.66 D. 0.77; 0.23 E. 0.23; 0.77

Q: Consider the following probability distribution for stocks A and B: If you invest 40% of your money in A and 60% in B, what would be your portfolio's expected rate of return and standard deviation? A. 9.9%; 3% B. 9.9%; 1.1% C. 11%; 1.1% D. 11%; 3% E. None of the options are correct.

Q: Consider the following probability distribution for stocks A and B: The coefficient of correlation between A and B is A. 0.46. B. 0.60. C. 0.58. D. 1.20.

Q: Consider the following probability distribution for stocks A and B: The variances of stocks A and B are _____ and _____, respectively. A. 1.5%; 1.9% B. 2.2%; 1.2% C. 3.2%; 2.0% D. 1.5%; 1.1%

Q: Consider the following probability distribution for stocks A and B: The standard deviations of stocks A and B are _____ and _____, respectively. A. 1.5%; 1.9% B. 2.5%; 1.1% C. 3.2%; 2.0% D. 1.5%; 1.1%

Q: Consider the following probability distribution for stocks A and B: The expected rates of return of stocks A and B are _____ and _____, respectively. A. 13.2%; 9% B. 14%; 10% C. 13.2%; 7.7% D. 7.7%; 13.2%

Q: Which of the following statement(s) is(are) false regarding the selection of a portfolio from those that lie on the capital allocation line? I) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors. II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. III) Investors choose the portfolio that maximizes their expected utility. A. I only B. II only C. III only D. I and II E. I and III

Q: Which of the following statement(s) is(are) true regarding the selection of a portfolio from those that lie on the capital allocation line? I) Less risk-averse investors will invest more in the risk-free security and less in the optimal risky portfolio than more risk-averse investors. II) More risk-averse investors will invest less in the optimal risky portfolio and more in the risk-free security than less risk-averse investors. III) Investors choose the portfolio that maximizes their expected utility. A. I only B. II only C. III only D. I and III E. II and III

Q: Efficient portfolios of N risky securities are portfolios that A. are formed with the securities that have the highest rates of return regardless of their standard deviations. B. have the highest rates of return for a given level of risk. C. are selected from those securities with the lowest standard deviations regardless of their returns. D. have the highest risk and rates of return and the highest standard deviations. E. have the lowest standard deviations and the lowest rates of return.

Q: Which of the following statement(s) is(are) false regarding the variance of a portfolio of two risky securities? I) The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. II) There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. III) The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. A. I only B. II only C. III only D. I and II E. I and III

Q: Which of the following statement(s) is(are) true regarding the variance of a portfolio of two risky securities? I) The higher the coefficient of correlation between securities, the greater the reduction in the portfolio variance. II) There is a linear relationship between the securities' coefficient of correlation and the portfolio variance. III) The degree to which the portfolio variance is reduced depends on the degree of correlation between securities. A. I only B. II only C. III only D. I and II E. I and III

Q: 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 A. greater than zero. B. equal to zero. C. equal to the sum of the securities' standard deviations. D. equal to 1.

Q: The capital allocation line provided by a risk-free security and N risky securities is A. the line that connects the risk-free rate and the global minimum-variance portfolio of the risky securities. B. the line that connects the risk-free rate and the portfolio of the risky securities that has the highest expected return on the efficient frontier. C. the line tangent to the efficient frontier of risky securities drawn from the risk-free rate. D. the horizontal line drawn from the risk-free rate.

Q: The efficient frontier of risky assets is A. the portion of the minimum-variance portfolio that lies above the global minimum variance portfolio. B. the portion of the minimum-variance portfolio that represents the highest standard deviations. C. the portion of the minimum-variance portfolio that includes the portfolios with the lowest standard deviation. D. the set of portfolios that have zero standard deviation.

Q: Other things equal, diversification is most effective when A. securities' returns are uncorrelated. B. securities' returns are positively correlated. C. securities' returns are high. D. securities' returns are negatively correlated. E. securities' returns are positively correlated and high.

Q: The expected return of a portfolio of risky securities A. is a weighted average of the securities' returns. B. is the sum of the securities' returns. C. is the weighted sum of the securities' variances and covariances. D. is a weighted average of the securities' returns and the weighted sum of the securities' variances and covariances. E. None of the options are correct.

Q: The standard deviation of a portfolio of risky securities is A. the square root of the weighted sum of the securities' variances. B. the square root of the sum of the securities' variances. C. the square root of the weighted sum of the securities' variances and covariances. D. the square root of the sum of the securities' covariances.

Q: The variance of a portfolio of risky securities A. is a weighted sum of the securities' variances. B. is the sum of the securities' variances. C. is the weighted sum of the securities' variances and covariances. D. is the sum of the securities' covariances. E. None of the options are correct.

Q: The risk that cannot be diversified away is A. firm-specific risk. B. unique. C. nonsystematic risk. D. market risk.

Q: The risk that can be diversified away is A. firm-specific risk. B. beta. C. systematic risk. D. market risk.

Q: Nonsystematic risk is also referred to as A. market risk or diversifiable risk. B. firm-specific risk or market risk. C. diversifiable risk or market risk. D. diversifiable risk or unique risk.

Q: Firm-specific risk is also referred to as A. systematic risk or diversifiable risk. B. systematic risk or market risk. C. diversifiable risk or market risk. D. diversifiable risk or unique risk.

Q: Unique risk is also referred to as A. systematic risk or diversifiable risk. B. systematic risk or market risk. C. diversifiable risk or market risk. D. diversifiable risk or firm-specific risk. E. None of the options are correct.

Q: Diversifiable risk is also referred to as A. systematic risk or unique risk. B. systematic risk or market risk. C. unique risk or market risk. D. unique risk or firm-specific risk.

Q: Nondiversifiable risk is also referred to as A. systematic risk or unique risk. B. systematic risk or market risk. C. unique risk or market risk. D. unique risk or firm-specific risk.

Q: Systematic risk is also referred to as A. market risk or nondiversifiable risk. B. market risk or diversifiable risk. C. unique risk or nondiversifiable risk. D. unique risk or diversifiable risk. E. None of the options are correct.

Q: Market risk is also referred to as A. systematic risk or diversifiable risk. B. systematic risk or nondiversifiable risk. C. unique risk or nondiversifiable risk. D. unique risk or diversifiable risk.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to A. 0.4667. B. 0.8000. C. 0.3095. D. 0.41667. E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. A portfolio that has an expected outcome of $114 is formed by A. investing $100 in the risky asset. B. investing $80 in the risky asset and $20 in the risk-free asset. C. borrowing $46 at the risk-free rate and investing the total amount ($146) in the risky asset. D. investing $43 in the risky asset and $57 in the risk-free asset. E. Such a portfolio cannot be formed.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08? A. 30.1% and 69.9% B. 50.5% and 49.50% C. 60.0% and 40.0% D. 61.9% and 38.1% E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.13? A. 130.77% and 30.77% B. 30.77% and 130.77% C. 67.67% and 33.33% D. 57.75% and 42.25% E. Cannot be determined.

Q: You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to A. 0.325. B. 0.675. C. 0.912. D. 0.407. E. Cannot be determined.

Q: You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.20? A. 30% and 70% B. 50% and 50% C. 60% and 40% D. 40% and 60% E. Cannot be determined.

Q: You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.11? A. 53.8% and 46.2% B. 75% and 25% C. 62.5% and 37.5% D. 46.2% and 53.8% E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to A. 0.47. B. 0.80. C. 2.14. D. 0.40. E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.08? A. 30% and 70% B. 50% and 50% C. 60% and 40% D. 40% and 60% E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.08? A. 85% and 15% B. 75% and 25% C. 62.5% and 37.5% D. 57% and 43% E. Cannot be determined.

Q: An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.11 and a variance of 0.12 and 70% in a T-bill that pays 3%. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.086; 0.242 B. 0.054; 0.104 C. 0.295; 0.123 D. 0.087; 0.182 E. None of the options are correct.

Q: An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of 0.10 and 65% in a T-bill that pays 4%. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.089; 0.111 B. 0.087; 0.063 C. 0.096; 0.126 D. 0.087; 0.144

Q: The capital market line I) is a special case of the capital allocation line. II) represents the opportunity set of a passive investment strategy. III) has the one-month T-Bill rate as its intercept. IV) uses a broad index of common stocks as its risky portfolio. A. I, III, and IV B. II, III, and IV C. III and IV D. I, II, and III E. I, II, III, and IV

Q: To build an indifference curve, we can first find the utility of a portfolio with 100% in the risk-free asset, then A. find the utility of a portfolio with 0% in the risk-free asset. B. change the expected return of the portfolio and equate the utility to the standard deviation. C. find another utility level with 0% risk. D. change the standard deviation of the portfolio and find the expected return the investor would require to maintain the same utility level. E. change the risk-free rate and find the utility level that results in the same standard deviation.

Q: Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What are the proportions of stocks A, B, and C, respectively, in Bo's complete portfolio? A. 40%, 25%, 35% B. 8%, 5%, 7% C. 32%, 20%, 28% D. 16%, 10%, 14% E. 20%, 12.5%, 17.5%

Q: Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What is the equation of Bo's capital allocation line? A. E(rC) = 7.2 + 3.6 Standard Deviation of P B. E(rC) = 3.6 + 1.167 Standard Deviation of P C. E(rC) = 3.6 + 12.0 Standard Deviation of P D. E(rC) = 0.2 + 1.167 Standard Deviation of P E. E(rC) = 3.6 + 0.857 Standard Deviation of P

Q: Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What is the standard deviation of Bo's complete portfolio? A. 7.20% B. 5.40% C. 6.92% D. 4.98% E. 5.76%

Q: Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. What is the expected return on Bo's complete portfolio? A. 10.32% B. 5.28% C. 9.62% D. 8.44% E. 7.58%

Q: Treasury bills are commonly viewed as risk-free assets because A. their short-term nature makes their values insensitive to interest rate fluctuations. B. the inflation uncertainty over their time to maturity is negligible. C. their term to maturity is identical to most investors' desired holding periods. D. their short-term nature makes their values insensitive to interest rate fluctuations, and the inflation uncertainty over their time to maturity is negligible. E. the inflation uncertainty over their time to maturity is negligible, and their term to maturity is identical to most

Q: In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called A. the security market line. B. the capital allocation line. C. the indifference curve. D. the investor's utility line.

Q: Asset allocation may involve A. the decision as to the allocation between a risk-free asset and a risky asset. B. the decision as to the allocation among different risky assets. C. considerable security analysis. D. the decision as to the allocation between a risk-free asset and a risky asset and the decision as to the allocation among different risky assets. E. the decision as to the allocation between a risk-free asset and a risky asset and considerable security

Q: Based on their relative degrees of risk tolerance, A. investors will hold varying amounts of the risky asset in their portfolios. B. all investors will have the same portfolio asset allocations. C. investors will hold varying amounts of the risk-free asset in their portfolios. D. investors will hold varying amounts of the risky asset and varying amounts of the risk-free asset in their

Q: The first major step in asset allocation is A. assessing risk tolerance. B. analyzing financial statements. C. estimating security betas. D. identifying market anomalies.

Q: The change from a straight to a kinked capital allocation line is a result of A. reward-to-volatility ratio increasing. B. borrowing rate exceeding lending rate. C. an investor's risk tolerance decreasing. D. increase in the portfolio proportion of the risk-free asset.

Q: A reward-to-volatility ratio is useful in A. measuring the standard deviation of returns. B. understanding how returns increase relative to risk increases. C. analyzing returns on variable-rate bonds. D. assessing the effects of inflation. E. None of the options are correct.

Q: You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. What would be the dollar value of your positions in X, Y, and the T-bills, respectively, if you decide to hold a portfolio that has an expected outcome of $1,120? A. $568; $378; $54 B. $568; $54; $378 C. $378; $54; $568 D. $108; $514; $378 E. Cannot be determined.

Q: You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. What would be the dollar values of your positions in X and Y, respectively, if you decide to hold 40% of your money in the risky portfolio and 60% in T-bills? A. $240; $360 B. $360; $240 C. $100; $240 D. $240; $160 E. Cannot be determined.

Q: You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. If you want to form a portfolio with an expected rate of return of 0.10, what percentages of your money must you invest in the T-bill, X, and Y, respectively, if you keep X and Y in the same proportions to each other as in portfolio P? A. 0.25; 0.45; 0.30 B. 0.19; 0.49; 0.32 C. 0.32; 0.41; 0.27 D. 0.50; 0.30; 0.20 E. Cannot be determined.

Q: You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081. If you want to form a portfolio with an expected rate of return of 0.11, what percentages of your money must you invest in the T-bill and P, respectively? A. 0.25; 0.75 B. 0.19; 0.81 C. 0.65; 0.35 D. 0.50; 0.50 E. Cannot be determined.

Q: Consider a T-bill with a rate of return of 5% and the following risky securities: Security A: E(r) = 0.15; Variance = 0.04 Security B: E(r) = 0.10; Variance = 0.0225 Security C: E(r) = 0.12; Variance = 0.01 Security D: E(r) = 0.13; Variance = 0.0625 From which set of portfolios, formed with the T-bill and any one of the four risky securities, would a risk-averse investor always choose his portfolio? A. The set of portfolios formed with the T-bill and security A. B. The set of portfolios formed with the T-bill and security B. The set of portfolios formed with the T-bill and security C. D. The set of portfolios formed with the T-bill and security D. E. Cannot be determined. Security C has the highest reward-to-volatility ratio.

Q: You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to A. 0.4667. B. 0.8000. C. 2.14. D. 0.41667. E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. A portfolio that has an expected outcome of $115 is formed by A. investing $100 in the risky asset. B. investing $80 in the risky asset and $20 in the risk-free asset. C. borrowing $43 at the risk-free rate and investing the total amount ($143) in the risky asset. D. investing $43 in the risky asset and $57 in the riskless asset. E. Such a portfolio cannot be formed.

Q: You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.06? A. 30% and 70% B. 50% and 50% C. 60% and 40% D. 40% and 60% E. Cannot be determined.

Q: You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.09? A. 85% and 15% B. 75% and 25% C. 67% and 33% D. 57% and 43% E. Cannot be determined.

Q: An investor invests 70% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 30% in a T-bill that pays 5%. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.120; 0.14 B. 0.087; 0.06 C. 0.295; 0.12 D. 0.087; 0.12

Q: An investor invests 40% of his wealth in a risky asset with an expected rate of return of 0.17 and a variance of 0.08 and 60% in a T-bill that pays 4.5%. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.114; 0.126 B. 0.087; 0.068 C. 0.095; 0.113 D. 0.087; 0.124 E. None of the options are correct.

Q: An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.13 and a variance of 0.03 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.114; 0.128 B. 0.087; 0.063 C. 0.295; 0.125 D. 0.081; 0.052

Q: An investor invests 30% of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70% in a T-bill that pays 6%. His portfolio's expected return and standard deviation are __________ and __________, respectively. A. 0.114; 0.12 B. 0.087; 0.06 C. 0.295; 0.06 D. 0.087; 0.12 E. None of the options are correct.

Q: Given the capital allocation line, an investor's optimal portfolio is the portfolio that A. maximizes her expected profit. B. maximizes her risk. C. minimizes both her risk and return. D. maximizes her expected utility. E. None of the options are correct.

Q: Which of the following statements regarding the capital allocation line (CAL) is false? A. The CAL shows risk-return combinations. B. The slope of the CAL equals the increase in the expected return of the complete portfolio per unit of additional standard deviation. C. The slope of the CAL is also called the reward-to-volatility ratio. D. The CAL is also called the efficient frontier of risky assets in the absence of a risk-free asset.

Q: The capital allocation line can be described as the A. investment opportunity set formed with a risky asset and a risk-free asset. B. investment opportunity set formed with two risky assets. C. line on which lie all portfolios that offer the same utility to a particular investor. D. line on which lie all portfolios with the same expected rate of return and different standard deviations.

Q: Steve is more risk-averse than Edie. On a graph that shows Steve and Edie's indifference curves, which of the following is true? Assume that the graph shows expected return on the vertical axis and standard deviation on the horizontal axis. I) Steve and Edie's indifference curves might intersect. II) Steve's indifference curves will have flatter slopes than Edie's. III) Steve's indifference curves will have steeper slopes than Edie's. IV) Steve and Edie's indifference curves will not intersect. V) Steve's indifference curves will be downward sloping, and Edie's will be upward sloping. A. I and V B. I and III C. III and IV D. I and II E. II and IV

Q: According to the mean-variance criterion, which of the statements below is correct? A. Investment B dominates investment A. B. Investment B dominates investment C. C. Investment D dominates all of the other investments. D. Investment D dominates only investment B. E. Investment C dominates investment A.