Which of the Following Is True of the Mean-Standard Deviation

question 17

Multiple Choice

Which of the following is true of the mean-standard deviation diagram?

• A)It plots means on the X-axis and standard deviations on the Y-axis of all feasible portfolios.
• B)When investors employ risk-free borrowing to increase their holdings in a risky investment,the risk of the portfolio increases.
• C)If the risky investment has a positive weight,and the graph has a mean return for the risky investment that is larger than the return of the risk-free asset,the slope of this line is negative.
• D)The graph of portfolios of two perfectly positively correlated,but risky investments,has the same shape as the graph for a portfolio of a riskless and a risky investment.

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Definitions:

Employee Stock Option

A privilege, sold by one party to another, that gives the buyer the right, but not the obligation, to buy (call) or sell (put) a stock at an agreed-upon price within a certain period or on a specific date.

Fixed Price

A pricing strategy where the cost of goods or services is set at a specific amount and does not fluctuate.

Buy Shares

The act of purchasing ownership interests in a company, thereby becoming a shareholder entitled to dividends and capital gains.

Lower Bound

The minimum value that a theoretical price, such as an option's price, can reach.