6 - 1INCORRECT true A B C D

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1 INCORRECT Which of the following statements regarding risk-averse investors is  true ? A) They only accept risky investments that offer  risk premiums over the risk-free rate. B) They accept investments that are fair games. C) They only care about rate of return. D) They are willing to accept lower returns and  high risk. E) A  and  B . Feedback: Risk-averse investors only accept risky investments that offer risk premiums over the risk-free  rate. 2 INCORRECT An investor invests 60 percent of his wealth in a risky asset with an  expected rate of return of 0.14 and a variance of 0.32 and 40 percent  in a T-bill that pays 3 percent. His portfolio's expected return and  standard deviation are __________ and __________, respectively. A) 0.096; 0.339 B) 0.087; 0.267 C) 0.295; 0.123 D) 0.087; 0.182 E) none of the above Feedback:  E(r P ) = 0.6(14%) + 0.4(3%) = 9.6%; s P  = 0.6(0.32)1/2 = .3394. 3 INCORRECT When a portfolio consists of only a risky asset and a risk-free asset,  increasing the fraction of the overall portfolio invested in the risky  asset will A) increase the expected return on the portfolio. B)
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This note was uploaded on 03/06/2012 for the course FINANCE 5700 taught by Professor Bob during the Spring '12 term at websteruniv.edu.

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6 - 1INCORRECT true A B C D

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