An Efficient Portfolio: I.has Only Unique Risk;

question 11

Multiple Choice

An efficient portfolio:
I.has only unique risk;
II.provides the highest expected return for a given level of risk;
III.provides the least risk for a given level of expected return;
IV.has no risk at all

• A)I only
• B)II and III only
• C)IV only
• D)II only

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Definitions:

Real Interest Rate

Represents the rate of interest an investor expects to receive after allowing for inflation.

Inflation

The pace at which prices for general goods and services ascend, thus diminishing the capability to purchase.

Real Interest Rate

The interest rate adjusted for the inflation rate, reflecting the real cost of borrowing and the real yield to lenders or investors.

Nominal Interest Rate

The rate of interest before adjusting for inflation, representing the face value of interest payments.