# Question

You are considering two alternative two-year investments. You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only one year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (com-pared with the second) are true?

a. Its two-year risk premium is the same as the second alternative.

b. The standard deviation of its two-year return is the same.

c. Its annualized standard deviation is lower.

d. Its Sharpe ratio is higher.

e. It is relatively more attractive to investors who have lower degrees of risk aversion.

a. Its two-year risk premium is the same as the second alternative.

b. The standard deviation of its two-year return is the same.

c. Its annualized standard deviation is lower.

d. Its Sharpe ratio is higher.

e. It is relatively more attractive to investors who have lower degrees of risk aversion.

## Answer to relevant Questions

Use Figure to analyze the effect of the following on the level of real interest rates: a. Businesses become more optimistic about future demand for their products and decide to increase their capital spending. b. ...Consider the client in problem 16 with A = 3.5. a. If the client chose to invest in the passive portfolio, what proportion (y) would be selected? b. Is the fee (percentage of the investment in your fund, deducted at the ...The expected return on T-bills is 5 percent and the same on the Composite index is 9.24 percent. Calculate the expected return and standard deviation of portfolios invested in T bills and the Composite index with weights as ...Assuming the correlation between the annual returns is indeed zero, what would be the optimal asset allocation? What should be Greta’s capital allocation? If the simple CAPM is valid, which of the following situations are possible? Explain. Consider each situation independently.Post your question

0