Theoretically, a Risk-Free Portfolio Could Be Created by Combining Risky

question 335

Multiple Choice

Theoretically, a risk-free portfolio could be created by combining risky securities in a manner that caused the:

• A) Portfolio standard deviation to equal one.
• B) Expected return of the portfolio to equal the market expected return.
• C) Portfolio beta to equal zero.
• D) Risk premium to equal one.
• E) Nondiversifiable risk to be eliminated.

---

Definitions:

Strategically Analyzing

The process of assessing various elements and conditions impacting an organization or situation to formulate effective strategies.

Bankruptcy

A legal process involving a person or business that is unable to repay outstanding debts, resulting in the distribution of assets to creditors and possibly leading to the discharge of debts.

Liquidation

The process of closing a business and distributing its assets to claimants, typically during insolvency, paying creditors, and shareholders if funds remain.

Reorganization

The process of restructuring a company's business or legal structures for efficiency, to recover from financial distress, or to better align with strategic goals.