EBK INVESTMENTS
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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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
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