If Arbitrage Opportunities Are to Be Ruled Out, Each Well-Diversified

question 11

Multiple Choice

If arbitrage opportunities are to be ruled out, each well-diversified portfolio's expected excess return must be

• A) inversely proportional to the risk-free rate.
• B) inversely proportional to its standard deviation.
• C) proportional to its weight in the market portfolio.
• D) proportional to its standard deviation.
• E) proportional to its beta coefficient.

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Definitions:

Rank Correlation Coefficient

A statistic that measures the degree of association between two ranked variables, assessing the strength and direction of their relationship.

Population Spearman Correlation

A measure of the strength and direction of the monotonic relationship between paired data in a population using ranked values.

Sample Statistic

A numerical measure that describes an aspect of a sample taken from a population, such as the mean or variance.

Friedman Test

A statistical test that doesn't rely on parameter assumptions to identify variations in treatments over several trials.