Unformatted text preview: Suppose there are two risky assets. One offers a higher return than the other, but it also has a higher standard deviation. Will one of these assets always lie on the efficient frontier? Will one of them always be inefficient if held alone? Risky asset is an investment with a return that is not guaranteed. Assets carry varying levels of risk. For example, holding a corporate bond is generally less risky than holding a stock. Government bonds are generally not considered risky assets. The return of any investment has an average, which is also the expected return, but most returns will be different from the average: some will be more and others will be less than the average. The more individual returns deviate from the expected return, the greater the risk and the greater the potential reward. The degree to which all returns for a particular investment or asset deviate from the expected return of the investment is a measure of its risk. This variability of returns is commensurate with the investment’s risk, and this measure of its risk....
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- Spring '11
- Standard Deviation, risky assets