Equity markets 7 - D) A and B. E) A and C. Answer: D...

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Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset 18. Passive investing A) may be accomplished by investing in index mutual funds. B) involves considerable security selection. C) involves considerable transaction costs. D) A and C. E) B and C. Answer: A Difficulty: Easy Rationale: Passive investing involves virtually no security selection and minimal transaction costs if accomplished via investing in index mutual funds. 19. Asset allocation A) may involve the decision as to the allocation between a risk-free asset and a risky asset. B) may involve the decision as to the allocation among different risky assets. C) may involve considerable security analysis.
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Unformatted text preview: D) A and B. E) A and C. Answer: D Difficulty: Easy Rationale: A and B are possible steps in asset allocation. C is related to security selection. 20. In the mean-standard deviation graph, the line that connects the risk-free rate and the optimal risky portfolio, P, is called ______________. A) the Security Market Line B) the Capital Allocation Line C) the Indifference Curve D) the investor's utility line E) none of the above Answer: B Difficulty: Moderate Rationale: The Capital Allocation Line (CAL) illustrates the possible combinations of a risk-free asset and a risky asset available to the investor Bodie, Investments, Sixth Edition...
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This note was uploaded on 01/31/2010 for the course ECON 3660DE taught by Professor Patrickmartinandvitalialexeev during the Spring '10 term at University of Guelph.

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