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1. 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)

2. 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)

3. 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?

4. 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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Financial Management, Finance

Category:- Financial Management
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