EBK INVESTMENTS
11th Edition
ISBN: 9781259357480
Author: Bodie
Publisher: MCGRAW HILL BOOK COMPANY
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Chapter 6, Problem 2PS
Summary Introduction
To determine: The true statement for Sharpe ratio.
Introduction : Sharpe ratio is used to examine the return and the risk associated with the asset. Sharpe ratio is also called as the volatility ratio. Sharpe ratio is the type ofratio for risk premium and the standard deviation with excess return.
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Students have asked these similar questions
1. The diversifiable risk of a portfolio:
a. Is correlated with systematic risk.
b. Can be made sufficiently small.
c. Is zero in the real world.
d. Is the risk that investors lose because of transaction costs.
Which one of the following conditions determines the investor’s overall optimal portfolio?
a. The marginal ratio of substitution of the investor’s utility function must be equal to the Sharpe ratio of the optimal risky portfolio.
b. The standard-deviation of the overall portfolio in minimised.
c. The expected return of the overall portfolio is maximised.
d. The slope of the Sharpe-ratio is equal to zero.
4. Markets can never be strong-form efficient because:
a. There are too many traders in them.
b. Investors are rational.
c. Information is costly to acquire.
d. All information is public.
5. Which one of the following is not a property of a pure arbitrage portfolio? a. Zero investment.
b. Zero systematic risk.
c. Positive net return.
d. All of the above.
Which of the following statements is correct concerning a mean-variance efficient portfolio of risky assets in a world where there is also a
risk-free asset?
OA. It will be impossible to form a different portfolio yielding a lower level of risk unless the portfolio also earns a lower return,
O B. Risk averse investors will only choose to invest in the market portfolio (M) regardless of the risk-free rate.
OC. The portfolio will always achieve the maximum possible returns.
O D. The portfolio will always be inside the feasible set.
When a portfolio consists of only a risky asset and a risk-free asset, increasing the fraction of the overall portfolio invested in the risky asset will
a.
Increase the expected return and standard deviation of the portfolio
b.
Increase the standard deviation of the portfolio
c.
Decrease the standard deviation of the portfolio
d.
Increase the expected return of the portfolio
Chapter 6 Solutions
EBK INVESTMENTS
Ch. 6.A - Prob. 1PCh. 6.A - Prob. 2PCh. 6 - Prob. 1PSCh. 6 - Prob. 2PSCh. 6 - Prob. 3PSCh. 6 - Prob. 4PSCh. 6 - Prob. 5PSCh. 6 - Prob. 6PSCh. 6 - Prob. 7PSCh. 6 - Prob. 8PS
Ch. 6 - Prob. 9PSCh. 6 - Prob. 10PSCh. 6 - Prob. 11PSCh. 6 - Prob. 12PSCh. 6 - Prob. 13PSCh. 6 - Prob. 14PSCh. 6 - Prob. 15PSCh. 6 - Prob. 16PSCh. 6 - Prob. 17PSCh. 6 - Prob. 18PSCh. 6 - Prob. 19PSCh. 6 - Prob. 20PSCh. 6 - Prob. 21PSCh. 6 - Prob. 22PSCh. 6 - Prob. 23PSCh. 6 - Prob. 24PSCh. 6 - Prob. 25PSCh. 6 - Prob. 26PSCh. 6 - Prob. 27PSCh. 6 - Prob. 28PSCh. 6 - Prob. 29PSCh. 6 - Prob. 1CPCh. 6 - Prob. 2CPCh. 6 - Prob. 3CPCh. 6 - Prob. 4CPCh. 6 - Prob. 5CPCh. 6 - Prob. 6CPCh. 6 - Prob. 7CPCh. 6 - Prob. 8CPCh. 6 - Prob. 9CP
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- Indicate whether its True or False. Then write the explanation! In the presence of diversification benefits, when we combine two assets together into a portfolio, the systematic risk of the portfolio will be less than the weighted average systematic risk of the individual assets in the portfolio.arrow_forwardAccording to modern portfolio theory, the idea that investors with different indifference curves will hold the same portfolio of risky securities is a result of O a. the separation theorem O b. covariance O c. the normal distribution assumption O d. diminishing marginal utility of incomearrow_forwardSuppose you have an investment portfolio with fraction x invested in a market portfolio and (1-x) in a risk- free asset. Increasing fraction x invested in the market portfolio and consequently decreasing (1-x) invested in the risk-free asset shall (select any correct answer, if there are multiple correct answers) Select one or more: O decrease the Sharpe ratio of the resulting portfolio O decrease the expected return of the resulting portfolio increase the Sharpe ratio of the resulting portfolio increase the expected return of the resulting portfolio Dincrease the risk of the resulting portfolioarrow_forward
- Some assumptions of Markowitz Portfolio Theory are said to be : (a) Investors consider each investment alternative as being presented by a probability distribution of expected returns over some holding period. (b) Investors estimate the return of the portfolio on the basis of the variability of expected Risk. (c) Investors base decisions solely on expected return and risk, so their utility curves are a function of expected return and the expected variance (or standard deviation)of returns only. (d) Investors minimize one-period expected utility, and their utility curves demonstrate diminishing marginal utility of wealth. a. B & C only b. B , C and D only c. All of the above d. A ,C and D onlyarrow_forwardUnsystematic risk: is compensated for by the risk premium. is measured by standard deviation. is related to the overall economy. can be effectively eliminated by portfolio diversification. is measured by beta.arrow_forwardEconomy Probability Stock A Stock B Recession -30% -20% 10% 5% 40% 15% Average Boom What is the standard deviation of Stock A? 18.8% 24.9% 12.9% 0.25 0.50 0.25 20.0%arrow_forward
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