1.

An investor's degree of risk aversion will determine his or her

optimal risky portfolio

risk-free rate

optimal mix of the risk-free asset and risky asset

capital allocation line

2.

Assume that investors can invest in a risk-free asset and more than 2 risky assets. Which of the following statements is correct, according to portfolio theory?

The optimal risky portfolio for all investors should have the lowest volatility.

All investors, regardless of risk aversion levels, will choose optimal complete portfolios on the same capital allocation line.

If an investor is more risk averse, he would choose the risky portfolio with a lower volatility.

If an investor is more risk averse, he would allocate a smaller fraction of his entire complete portfolio to the risk-free asset.

3.

No diversification benefits can be achieved by combining securities in a portfolio when the correlation between the securities is _.

1

less than 1

between 0 and 1

less than or equal to 0

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