5. Portfolio Selection Flashcards
1
Q
At the margin what does the risk averse investor care about?
A
Both asset returns and their distribution across states
2
Q
What is true of marginal utility of a risk neutral investor?
A
Marginal utility is constant
3
Q
When is the risk of the portfolio simply the weighted average of the risks of the two assets?
A
When the correlation coefficient is +1
4
Q
When does diversification achieve a level of risk for the overall portfolio that is below the weighted average risk level?
A
When the returns of the two assets are not perfectly correlated
5
Q
How can a risk free portfolio be achieved with risky assets
A
It is risk free when the assets are perfectly negatively correlated
