8. Which of the following most likely has the largest standard deviation of retu

Question

8. Which of the following most likely has the largest standard deviation of returns? a. Treasury bills b. US large stocks c. Corporate bonds 9. The standard deviation of portfolio returns is most likely a. less than the weighted average standard deviation of returns of its assets. b. equal to the weighted average standard deviation of returns of its assets. c. greater than the weighted average standard deviation of returns of its assets. 10. The correlation between a risk-free asset and a portfolio of risky assets is closest to: b. 0 11. Correlation is a standardized measure of: a. variance. ?, covariance. c. standard deviation. 12. The greatest degree of diversification will occur with the correlation between assets is: b. 0 c. +1 13. When computing portfolio risk for a portfolio with more than three assets, the number of variance terms used is: a. less than the number of correlations terms used. a. equal to the number of correlations terms used. a. greater than the number of correlations terms used. 14. A portfolio that has the highest return for a given level of risk is considered to be: a. riskless. b. efficient c. an excess return portfolio

Explanation / Answer

8:

Stocks are more volatile than bonds & trasury bills

Option B is correct

9:

SD of Portfolio

= SQRT[((Wa*SDa)^2)+((Wb*SDb)^2)+2*(wa*SDa)*(Wb*SDb)*r(1,2)]

It will be max, weighted avg of SD of securities , where r(1,2) is "+1" else less than weighted Avg of SD of securites

Thus mostlikely is less than weighted avg SD of securities.

OPtion A is correct

10.

There is no relation between risky portfolio & Risk free return .

Thus correlation is "0"

Option B is correct

11.

Correlation = Covariance / ( SD of A * SD of B)

Thus it is standardized measure of Covariance

OPtion B is correct

12.

if "r=-1", we can reduce the portfolio risk to "Zero".

OPtion A is correct

13.

The no. of variance terms is used is more than no. of correlation terms used.

Option C is correct.

14.

if portfolio is having highest return for given level of risk & there is no other security that gives higher ret for same or higher ret for lower risk or same ret for lower risk, then security is said to be efficient.

Thus option B is correct.

Pls comment, if any further assistance is required.

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