Exam 6: Capital Allocation to Risky Assets

In a return-standard deviation space, which of the following statements is(are) true for risk-averse investors? (The vertical and horizontal lines are referred to as the expected return-axis and the standard deviation-axis, Respectively.) I. An investor's own indifference curves might intersect. II. Indifference curves have negative slopes. III. In a set of indifference curves, the highest offers the greatest utility. IV. Indifference curves of two investors might intersect.

In the mean-standard deviation graph, which one of the following statements is true regarding the indifference curve of a risk-averse investor?

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.

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?

In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called

Which of the following statements regarding the capital allocation line (CAL) is false?

In the mean-standard deviation graph, an indifference curve has a ________ slope.

The capital allocation line can be described as the

The presence of risk means that

Consider a risky portfolio, A, with an expected rate of return of 0.15 and a standard deviation of 0.15, that lies on a given indifference curve. Which one of the following portfolios might lie on the same indifference curve for A risk averse investor?

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?

When an investment advisor attempts to determine an investor's risk tolerance, which factor would they be least likely to assess?

According to the mean-variance criterion, which one of the following investments dominates all others?

Which of the following statements is(are) false? I. Risk-averse investors reject investments that are fair games. II. Risk-neutral investors judge risky investments only by the expected returns. III. Risk-averse investors judge investments only by their riskiness. IV. Risk-loving investors will not engage in fair games.

Given the capital allocation line, an investor's optimal portfolio is the portfolio that

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?

The first major step in asset allocation is

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?

To maximize her expected utility, which one of the following investment alternatives would she choose? Assume an investor with the following utility function: U = E(r) 3/2(s2).

The certainty equivalent rate of a portfolio is