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Question 5 of 5 The two fund separation theorem states that A. All investors choose the same optimal portfolio. B. All investors choose the same efficient portfolio. C. All investors invest all their wealth in the tangency portfolio, derived from a straight line through the riskfree rate. D. All investors hold the same risky portfolio, the tangency portfolio, but they differ by how much they invest in the riskfree rate and in the tangency portfolio.
Concept Questions Class 8 Question 1 of 5 If you add more and more uncorrelated securities to a portfolio, in the limit the variance of the portfolio goes to Question 2 of 5 If you add more and more correlated securities to a portfolio, in the limit the variance of the portfolio goes to Question 3 of 5 Suppose you run the regression: R_i = a + b*R_m +e_i for a stock i. R_m is the return on a large very well diversified portfolio, R_i is the return on the stock i and e_i is the error in the regression. This regression allows you to decompose the return on asset i into a systematic (non-diversifiable) and idiosyncratic (diversifiable) part. The part of the return on i that is compensation for systematic (non-diversifiable) risk is measured by:
Question 4 of 5 If EVERYONE holds the tangency portfolio (perhaps also combining it with the risk-free asset), and if there are 10,000 stocks, each with 1 million shares outstanding, and if the share price of Apple is $300 while the total value of the stock market is $1T (trillion), what will be the weight of Apple in the tangency portfolio? A. 1/10K B. 300/1T C. 300*1M/1T D. 300/10K Question 5 of 5 Is there ever a reason to hold a risky stock as part of your portfolio that has the same expected return as the riskfree rate?