Portfolio Risk and Return Analysis
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Questions and Answers

The standard deviation of the portfolio consisting of only the risk-free asset is zero.

True

The budget line is a downward sloping line, indicating that the expected return on the portfolio decreases with risk.

False

If an investor invests only in risky assets, then the expected return is Rf.

False

The slope of the budget line represents the price of risk.

<p>True</p> Signup and view all the answers

If an investor invests in both risk-free and risky assets, then they expect to earn a return equal to Rf.

<p>False</p> Signup and view all the answers

The risk-free asset has a standard deviation of σm.

<p>False</p> Signup and view all the answers

A risk-averse investor is willing to accept a lower expected income in order to avoid taking a risk.

<p>True</p> Signup and view all the answers

The risk premium is a measure of the degree of risk tolerance.

<p>False</p> Signup and view all the answers

A risk lover is willing to pay to avoid taking a risky outcome.

<p>False</p> Signup and view all the answers

The risk premium is the difference between the expected income of a risky outcome and a certain outcome.

<p>True</p> Signup and view all the answers

The utility curve is a straight line for a risk-averse investor.

<p>False</p> Signup and view all the answers

The risk premium is zero for a risk-neutral investor.

<p>True</p> Signup and view all the answers

A risk-averse person will always accept a lottery with a positive expected value.

<p>False</p> Signup and view all the answers

The expected value of a lottery is the maximum payoff that the lottery will generate.

<p>False</p> Signup and view all the answers

Standard deviation is a measure of the expected return of an investment portfolio.

<p>False</p> Signup and view all the answers

Variance is a measure of the degree of risk aversion of decision makers.

<p>False</p> Signup and view all the answers

Diversification is a way to increase the risk of an investment portfolio.

<p>False</p> Signup and view all the answers

The expected value of a lottery is calculated by subtracting the probability of each outcome from the payoff of each outcome.

<p>False</p> Signup and view all the answers

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