O A risk-averse investor does not like risk and so would prefer to invest in the portfolio represented by the point where the expected return is .096 and the standard deviation is zero, because this portfolio has zero risk The degree of risk reduction increases as the correlation between returns on the two securities decreases coefficient When the correlation coefficient is -1, risk can be eliminated completely A risk-averse investor would prefer combinations on the hard red line represented by p1,2 = -1.0, as opposed to all of the other feasible combinations below this line
O A risk-averse investor does not like risk and so would prefer to invest in the portfolio represented by the point where the expected return is .096 and the standard deviation is zero, because this portfolio has zero risk The degree of risk reduction increases as the correlation between returns on the two securities decreases coefficient When the correlation coefficient is -1, risk can be eliminated completely A risk-averse investor would prefer combinations on the hard red line represented by p1,2 = -1.0, as opposed to all of the other feasible combinations below this line
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Finance
Transcribed Image Text:Figure 7.7
Expected return
0.120
0.110
0.100
0.096
0.090
0.080
0.10
P1.2--1.0
0.12
P1,2=-0.5
P1.2-0.0
P12=+0.5
0.15
0.20
Standard deviation
014-516
0.25
W₁ W₂
1
20
0.30
10
W₁ W₂
With respect to the graph provided above, which of the following statements is incorrect.
A risk-averse investor does not like risk and so would prefer to invest in the portfolio represented by the point
where the expected return is .096 and the standard deviation is zero, because this portfolio has zero risk
The degree of risk reduction increases as the correlation between returns on the two securities decreases
coefficient
When the correlation coefficient is -1, risk can be eliminated completely
A risk-averse investor would prefer combinations on the hard red line represented by p1,2 = -1.0, as opposed
to all of the other feasible combinations below this line
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