Podcast
Questions and Answers
What is the standard deviation of the return when it is certain?
What is the standard deviation of the return when it is certain?
- 0 (correct)
- 1
- 10
- 100
In Markowitz’s framework, what is represented by the point labeled Rf on the vertical axis in Figure 2 Panel 2-1?
In Markowitz’s framework, what is represented by the point labeled Rf on the vertical axis in Figure 2 Panel 2-1?
- Expected return
- Risk-free rate (correct)
- Portfolio A
- Volatility of portfolio A
What is the slope of the straight line between Rf and portfolio A in Panel 2-1?
What is the slope of the straight line between Rf and portfolio A in Panel 2-1?
- (RA / Rf)σA
- (RA - Rf)σA
- (RA – Rf)/σA (correct)
- (RA + Rf)σA
Why would an investor not choose a portfolio along the straight line between the risk-free rate and portfolio A?
Why would an investor not choose a portfolio along the straight line between the risk-free rate and portfolio A?
Which point in Panel 2-1 of Figure 2 represents a portfolio that may contain one or more assets?
Which point in Panel 2-1 of Figure 2 represents a portfolio that may contain one or more assets?
What does the slope (RA – Rf)/σA represent in the context of Panel 2-1 in Figure 2?
What does the slope (RA – Rf)/σA represent in the context of Panel 2-1 in Figure 2?
What does the measure of risk in Modern Portfolio Theory aim to convey?
What does the measure of risk in Modern Portfolio Theory aim to convey?
How is risk related to the standard deviation of an asset's returns?
How is risk related to the standard deviation of an asset's returns?
What is one desirable characteristic of Markowitz's proposal regarding asset returns?
What is one desirable characteristic of Markowitz's proposal regarding asset returns?
Why does the text mention that there are alternative definitions of risk?
Why does the text mention that there are alternative definitions of risk?
What is the primary implication of more dispersion in asset returns?
What is the primary implication of more dispersion in asset returns?
How does risk relate to the ability to quantify it according to Modern Portfolio Theory?
How does risk relate to the ability to quantify it according to Modern Portfolio Theory?
Why is volatility not a proper measure of risk for an asset in a diversified portfolio?
Why is volatility not a proper measure of risk for an asset in a diversified portfolio?
What is the primary reason behind spreading investments across many assets in a portfolio?
What is the primary reason behind spreading investments across many assets in a portfolio?
Based on the text, why would assessing an asset's risk with volatility in a diversified portfolio lead to overestimation?
Based on the text, why would assessing an asset's risk with volatility in a diversified portfolio lead to overestimation?
What is the Greek letter commonly used to denote volatility?
What is the Greek letter commonly used to denote volatility?
In a properly diversified portfolio, which type of risk tends to vanish?
In a properly diversified portfolio, which type of risk tends to vanish?
What does the text suggest is essential when combining assets in a portfolio?
What does the text suggest is essential when combining assets in a portfolio?
