Which one of the following statements is true? If there is no arbitrage than the expectations hypothesis necessarily holds. The expectation hypothesis assumes investors require compensation for interest rate risk. In the expectations hypothesis an upward sloping yield curve implies that long- term rate are going to decrease. In the expectations hypothesis, a downward sloping yield curve implies that short-term rates are expected to decrease. None of the above 1. Given: i. Stock X: Expected return = 15%, Standard Deviation = 60% ii. Stock Y: Expected return = 25%, Standard Deviation = 20% iii. Correlation between stocks X and Y is 0.4 iv. Portfolio A consists of 30% in X, 90% in Y and -20% in the risk free asset The risk free rate is 5% V. What is the expected return of Portfolio A? 0.3(15%) + 0.9(25%) (20%)(5%) 0.3(15%) + 0.9(25%) + (20%)(5%) 0.3(15%) + 0.9(25%) 0.3(60%) + 0.9(20%) 0.3(60%) + 0.9(20%) - (0.3)(0.9)(0.4)(0.2)(0.6) None of the above