60、When a risk-free asset is combined with a portfolio of risky assets, will the:
| standard deviation of the
resulting portfolio be a linear
function of the standard deviation
of the risky asset portfolio? | graph of the possible portfolio return
and risk combinations display
increasing incremental return per unit
of incremental risk change? | A. | No | No | B. | No | Yes | C. | Yes | No | D. | Yes | Yes |
A. Answer A B. Answer B C. Answer C D. Answer D
Correct answer = C
"An Introduction to Asset Pricing Models," Frank K. Reilly and Keith C. Brown
2008 Modular Level I, Vol. 4, pp. 256-257
Study Session 12-51-a
explain the capital market theory, including its underlying assumptions, and explain the effect on expected returns, the standard deviation of returns, and possible risk/return combinations when a risk-free asset is combined with a portfolio of risky assets
The variance of a portfolio consisting of a risky asset and a risky portfolio is
σ2
port = w2 RF σ2 RF + (1 - wRF)2 σ2i + 2wRF (1 - wRF) rRFI σRF σi
Because the variance of the risk-free asset is zero, σ2 RF = 0, the equation simplifies to
σ2
port = (1 - wRF)2 σ2i
The standard deviation is σ
port = (1 - wRF) σi. Thus the standard deviation of the portfolio is a linear function of the standard deviation of the risky asset portfolio.
The resulting graph of possible portfolio return and risk combinations is also linear, meaning that it will display constant, not increasing, incremental return per unit of incremental risk change.
| 
发表于 2008-5-27 15:45
| 
