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Questions and Answers
The standard deviation of the portfolio consisting of only the risk-free asset is zero.
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.
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.
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.
The slope of the budget line represents the price of risk.
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If an investor invests in both risk-free and risky assets, then they expect to earn a return equal to Rf.
If an investor invests in both risk-free and risky assets, then they expect to earn a return equal to Rf.
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The risk-free asset has a standard deviation of σm.
The risk-free asset has a standard deviation of σm.
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A risk-averse investor is willing to accept a lower expected income in order to avoid taking a risk.
A risk-averse investor is willing to accept a lower expected income in order to avoid taking a risk.
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The risk premium is a measure of the degree of risk tolerance.
The risk premium is a measure of the degree of risk tolerance.
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A risk lover is willing to pay to avoid taking a risky outcome.
A risk lover is willing to pay to avoid taking a risky outcome.
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The risk premium is the difference between the expected income of a risky outcome and a certain outcome.
The risk premium is the difference between the expected income of a risky outcome and a certain outcome.
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The utility curve is a straight line for a risk-averse investor.
The utility curve is a straight line for a risk-averse investor.
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The risk premium is zero for a risk-neutral investor.
The risk premium is zero for a risk-neutral investor.
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A risk-averse person will always accept a lottery with a positive expected value.
A risk-averse person will always accept a lottery with a positive expected value.
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The expected value of a lottery is the maximum payoff that the lottery will generate.
The expected value of a lottery is the maximum payoff that the lottery will generate.
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Standard deviation is a measure of the expected return of an investment portfolio.
Standard deviation is a measure of the expected return of an investment portfolio.
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Variance is a measure of the degree of risk aversion of decision makers.
Variance is a measure of the degree of risk aversion of decision makers.
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Diversification is a way to increase the risk of an investment portfolio.
Diversification is a way to increase the risk of an investment portfolio.
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The expected value of a lottery is calculated by subtracting the probability of each outcome from the payoff of each outcome.
The expected value of a lottery is calculated by subtracting the probability of each outcome from the payoff of each outcome.
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