0 / 0.5 points- Question 5 An investor who wishes to form a portfolio that lies

Question

0 / 0.5 points- Question 5 An investor who wishes to form a portfolio that lies to the right of the optimal risky portfolio on the capital allocation line must a) borrow some money at the risk-free rate and invest in any risky portfolio. b) invest some of her money at the risk-free rate and the rest in the optimal risky portfolio such a portfolio cannot be formed. d) borrow some money at the risk-free rate and invest in the optimal risky portfolio and invest only in risky securities e) invest only in risky securities. 0/0.5 points Question8 The standard deviation of return on investment A is .36, while the standard deviation of return on investment B is.10. If the covariance of returns on A and B is 00985, the correlation coefficient between the returns on A and B is_.. )0.27 b) 0.40 c) 0.36 d) 0.25 )0.30

Explanation / Answer

q5.)

d.borrow some money at the risk free rate and invest in the optimal risky portfolio and invest only in risky securities.

borrowing should be made at risk free rate and investment must be made in the risky securities .

(a is wrong since investment cannot be made in any risky portfolio)

(b is wrong since investment must be at optimal portfolio and not at risk free rate)

(c is wrong since such a portfolio can be formed )

(e is wrong since investment must be made in the optimal risky portfolio)

q8.A.0.27.

correlation coefficient = (covariance) / [std dev A * std dev B]

=>0.00985 / [0.36*0.10]

=>0.27361111

=>0.27........(rounded to two decimals).

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