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Basic Question 3 of 10
Consider the following three statements. Which are true?
II. Any portfolio containing the risk-free asset has zero risk.
III. The risk-free asset has a correlation of 0 with any risky asset.
I. The risk-free asset has a variance of 0.
II. Any portfolio containing the risk-free asset has zero risk.
III. The risk-free asset has a correlation of 0 with any risky asset.
User Contributed Comments 4
| User | Comment |
|---|---|
| Taka | Good question!! |
| soarer1 | Risk Free Asset = 0 Variance, 0 SD, 0 Cooreclation with risky asset |
| mcspaddj | Wow. That was an impressive question. |
| BigJimStud | A good way to verify this is to use the formula for portfolio variance. Once you know the variance of the risk free asset is 0, it zeroes out 2 terms of the formula leaving only the risky asset left. This risk asset will always have risk > 0 |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe the implications of combining a risk-free asset with a portfolio of risky assets
explain the capital allocation line (CAL) and the capital market line (CML)
CFA® 2025 Level I Curriculum, Volume 2, Module 2.