Aimee is considering investing in two risky portfolios ABC and XYZ.  She wants to choose one risky portfolio (either ABC or XYZ) for investment purposes.

If she decides to construct a complete portfolio by choosing one risky portfolio and a risk -free asset, what will determine the risky portfolio choice for Aimee’s investment?

Reward-to-variability ratio (Sharpe Ratio)

Correlation between ABC and XYZ.

Risk tolerance level of investors

Once she has selected the risky portfolio, what factor / characteristic will explain her allocation of wealth between the risky portfolio and risk-free asset in the complete portfolio?  Why?

Answer rating: 100% (QA)

A A Reward to variability ratio Sharpe ratio Explanation Two risky portfolio option was provided to ... View the full answer