6. Consider the Efficient Portfolio Frontier that arises for a given set of risk

Question

6. Consider the Efficient Portfolio Frontier that arises for a given set of risky assets, and suppose that all portfolios on this frontier have strictly positive return standard devi- ation. Moreover, assume that there is a given risk-free rate. What is the Tangency Portfolio? (a) The Tangency Portfolio is exactly equal to the risk-free asset (b) The Tangency Portfolio is the portfolio on the Efficient Portfolio Frontier that has the minimum standard deviation. (c) The Tangency Portfolio is the asset out of the original set of risky assets that has the highest expected return (d) Out of all straight lines that connect the riskless asset with any portfolio along the Efficient Portfolio Frontier, the line that runs through the Tangency Portfolio has the highest expected return for a given level of standard deviation 7. Within the framework of the Capital Asset Pricing Model, consider stocks A and B Asset A's 3 is strictly bigger than asset B's ?. Moreover, the expected market return exceeds the risk-free rate. Which of the two assets has a higher expected return? (a) The expected return for both assets is the same. (b) Asset A. (c) Asset B (d) More information is needed to answer this question 8. Consider an Efficient Portfolio Frontier that arises for a given set of risky assets, and assume that there is a given risk-free rate. How does the Sharpe-ratio change along the tangency line? (a) The Sharpe-ratio does not change along the tangency line, but is constant. (b) The Sharpe-ratio increases for higher expected returns. (c) The Sharpe-ratio decreases for higher expected returns. (d) The Sharpe-ratio is between 0 and 1 for the section of the tangency line between the risk-free asset and the tangency portfolio, and is strictly bigger than 1 beyond the tangency portfolio.

Explanation / Answer

Question 6.) Option d

Tangency portfolio is tangent to efficient portfolio frontier & has highest expected return for given risk factor measured by standard deviation.

Q7, option b

Beta in capital asset pricing model captures the expected rate of return of an asset , hence answer is asset A

Q8option a.)

Tangent portfolio intersect with tangent line & has the highest Sharpe ratio thus it is constant along the tangent line.

Related Questions

Navigate

• Browse (All)
• Browse 6
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.