Question: Justify whether the standard deviation or covariance is the most significant measurement when adding a risky asset to an already highly risky portfolio. Provide support

  • Justify whether the standard deviation or covariance is the most significant measurement when adding a risky asset to an already highly risky portfolio. Provide support for your justification.
  • An investor ponders various allocations to the optimal risky portfolio and risk-free T-bills to construct his complete portfolio. Predict two ways that the Sharpe ratio of the complete portfolio could be affected by this choice. Support your prediction with examples.

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