Assume That an Investor Invests in One Risky and One

question 129

Multiple Choice

Assume that an investor invests in one risky and one risk free asset. Let σ_m be the standard deviation of the risky asset and b the proportion of the portfolio invested in the risky asset. The standard deviation of the portfolio is then equal to:

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Definitions:

Source of Funds

Refers to the origins of the capital or money a company uses for its operations or investments.

Cost of Capital

A metric used to determine the minimum expected return needed on an investment in order to be deemed a worthwhile expenditure, reflecting the investor's required return.

Systematic Risk

The inherent risk associated with the entire market or market segment, which cannot be eliminated by diversification.

SML Approach

The SML (Security Market Line) Approach is a relationship depicted in a graph that shows the expected return of a security against its risk, represented by beta.