2. Juliet is a risk-averse investor. Romeo is a less risk-averse investor than Juliet. Therefore.• For the same return, Romeo tolerates higher risk than Juliet.• For the same return, Juliet tolerates higher risk than Romeo.• For the same risk, Romeo requires a higher rate of return than Juliet.• For the same risk, Juliet requires a lower rate of return than Romeo.3. The graphical presentation of the best combinations of portfolio expected returns and standarddeviations constructed form al available risky aseets is called thePortfolio Opportunity set• Capital Allocation Line• Capital Market line• Efficient frontier4. Given the capital allocation line, an investor's optimal complete portfolio is the portfolio that• Has the highest expected return.• Has the highest expected utility.• Has the least variance.• Has the highest Sharpe ratio5. The single-index (market) model of security returns does not necessarily imply that• Correlation between a pair of securities arises due to correlation of these securities with themarket portfolio.• Total risk of a security is the sum of systematic and non-systematic risk.• Covariance of returns on a pair of securities would depend on individual betas of thesesecurities and variance of market return.• All securities should earn a zero alpha6. The capital asset pricing model applies toPortfolios of securities only.Efficient portfolios of securities only.• All portfolios and individual securities.• Individual securities only.

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2. Juliet is a risk-averse investor. Romeo is a less risk-averse investor than Juliet. Therefore. • For the same return, Romeo tolerates higher risk than Juliet. • For the same return, Juliet tolerates higher risk than Romeo. • For the same risk, Romeo requires a higher rate of return than Juliet. • For the same risk, Juliet requires a lower rate of return than Romeo.

2. Juliet is a risk-averse investor. Romeo is a less risk-averse investor than Juliet. Therefore. • For the same return, Romeo tolerates higher risk than Juliet. • For the same return, Juliet tolerates higher risk than Romeo. • For the same risk, Romeo requires a higher rate of return than Juliet. • For the same risk, Juliet requires a lower rate of return than Romeo.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 13QTD

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Given the indifference curves above, which of the following statements isCORRECT? A) The investor prefers portfolio A because it has a lower level of risk. B) The investor prefers portfolio B because it has the greatest expected return. C) The investor prefers portfolio E because it is on the indifference curve 2, which is higher than the indifference curve 1, where both portfolios A and B are situated. D) The investor does not prefer one portfolio from another as each portfolio lies on an indifferent curve.
Which of the following choices best completes the following statement? Explain. An investor with a higher degree of risk aversion, compared to one with a lower degree, will most prefer investment portfoliosa. with higher risk premiums.b. that are riskier (with higher standard deviations).c. with lower Sharpe ratios.d. with higher Sharpe ratios.
Answer whether each of the following statements is correct and explain your argument. \ (a) According to CAPM, the expected return of a risky asset is larger than the risk free rate. (b) According to CAPM, the expected return of a risky asset increases with its variance. (c) According to the separation property, the optimal risky portfolio for an investor dependson the investor’s personal preference. (d) A less risk-averse investor has a steeper indifference curve for the utility function.
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