{[ promptMessage ]}

Bookmark it

{[ promptMessage ]}

Chap007

# Chap007 - Chapter 7 Capital Allocation Between the Risky...

This preview shows pages 1–3. Sign up to view the full content.

Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset Multiple Choice Questions 1. The Capital Allocation Line can be described as the A) investment opportunity set formed with a risky asset and a risk-free asset. B) investment opportunity set formed with two risky assets. C) line on which lie all portfolios that offer the same utility to a particular investor. D) line on which lie all portfolios with the same expected rate of return and different standard deviations. E) none of the above. Answer: A Difficulty: Moderate Rationale: The CAL has an intercept equal to the risk-free rate. It is a straight line through the point representing the risk-free asset and the risky portfolio, in expected- return/standard deviation space. 2. Which of the following statements regarding the Capital Allocation Line (CAL) is false ? 3. Given the capital allocation line, an investor's optimal portfolio is the portfolio that Bodie, Investments, Sixth Edition 1

This preview has intentionally blurred sections. Sign up to view the full version.

View Full Document
Chapter 7 Capital Allocation Between the Risky Asset and the Risk-Free Asset 4. An investor invests 30 percent of his wealth in a risky asset with an expected rate of return of 0.15 and a variance of 0.04 and 70 percent in a T-bill that pays 6 percent. His portfolio's expected return and standard deviation are __________ and __________, respectively. Use the following to answer questions 5-8: You invest \$100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05.
This is the end of the preview. Sign up to access the rest of the document.

{[ snackBarMessage ]}

### What students are saying

• As a current student on this bumpy collegiate pathway, I stumbled upon Course Hero, where I can find study resources for nearly all my courses, get online help from tutors 24/7, and even share my old projects, papers, and lecture notes with other students.

Kiran Temple University Fox School of Business ‘17, Course Hero Intern

• I cannot even describe how much Course Hero helped me this summer. It’s truly become something I can always rely on and help me. In the end, I was not only able to survive summer classes, but I was able to thrive thanks to Course Hero.

Dana University of Pennsylvania ‘17, Course Hero Intern

• The ability to access any university’s resources through Course Hero proved invaluable in my case. I was behind on Tulane coursework and actually used UCLA’s materials to help me move forward and get everything together on time.

Jill Tulane University ‘16, Course Hero Intern