Asked by Jessica Tufts on Jul 02, 2024
The variance of the return on the market portfolio is .04 and the expected return on the market portfolio is 20%. If the risk-free rate of return is 10%, the market degree of risk aversion, A, is ________.
A) .5
B) 2.5
C) 3.5
D) 5
Market Portfolio
A theoretical portfolio that includes all assets in the market, with each asset weighted according to its market capitalization.
Risk Aversion
This concept describes an investor's preference to minimize uncertainty or to avoid risk in their investment decisions.
Risk-Free Rate
An anticipated gain from an investment devoid of financial risk, frequently illustrated through the returns on state bonds.
- Understand the concept of risk and return in finance and how they are measured.
- Grasp the fundamentals and implications of the Capital Asset Pricing Model (CAPM).
Learning Objectives
- Understand the concept of risk and return in finance and how they are measured.
- Grasp the fundamentals and implications of the Capital Asset Pricing Model (CAPM).