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Unformatted text preview: 3. If there is an increase in an asset’s variance, will its weight in an optimal portfolio be reduced? Yes. This effect will be larger the less diversified the portfolio is. 4. If there is a general increase in the level of correlation among assets, will the efficient frontier shift to the right when graphed in expected return-standard deviation space? Yes. Increasing correlation means less diversification benefits. 5. If the correlation between a pair of assets rises to a very high level, an investor who wants an optimized portfolio will eventually eliminate them from the portfolio. True or false? If short-selling is allowed, this is false. By short-selling, we can take advantage of the high correlation between a pair of stocks. However, when short-selling is not allowed, this will be true....
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This note was uploaded on 02/06/2012 for the course MGMT 411 taught by Professor Clarke during the Spring '09 term at Purdue.
- Spring '09