Question 4: Assume that expected returns and standard deviations for all securities - including the...
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Question 4: Assume that expected returns and standard deviations for all securities - including the risk-free rate for borrowing and lending - are known. In this case, all investors will have the same optimal risky portfolio. (True or False? Explain your reasoning)
Question 5: The standard deviation of the portfolio is always equal to the weighted average of the standard deviations of the assets in the portfolio. (True or false? Explain your reasoning)
Question 6: Suppose you have a project that has a 0.7 chance of doubling your investment in a year and a 0.3 chance of halving your investment in a year. What is the standard deviation of the rate of return on this investment?
Question 7: Suppose that you have $1 million and the following two opportunities from which to construct a portfolio: Risk-free asset earning 10% per year; Risky asset with expected return of 29% per year and a standard deviation of 39%. If you construct a portfolio with a standard deviation of 28%, what will be the rate of return?
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