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Basic Question 2 of 10
A risk-free asset ______
II. will have a high yield.
III. has a total risk of 1.
IV. has no place in an efficient portfolio.
I. has a beta of zero.
II. will have a high yield.
III. has a total risk of 1.
IV. has no place in an efficient portfolio.
User Contributed Comments 9
| User | Comment |
|---|---|
| americade | the only asset to accomplish that is tips |
| dobrekone | actually something like LIBOR serves better as a kind of a risk free rate |
| bmeisner | To be fair nothing is actually risk free but US gov't bonds are the closest. The problem is that the risk free rate is not constant. Americade is trying to make the point that TIPS - treasury inflation protected securities reduce some of the variability of the risk free rate because they strip out inflation to get a real risk free rate which is supposed to be less variable than nominal risk free rates in theory. |
| DannyZhou | Why is IV correct? |
| ambar | Because efficient frontier only contains risky assets |
| pavlomel | Exactly, since efficient frontier contains only RISKY assets, the risk free asset has no place in an efficient portfolio. IV should be correct then. |
| DariSH | why would it have a zero beta? |
| anneki | beta is a measure of risk, hence a risk free asset will have a beta of 0 |
| ascruggs92 | LIBOR is not a good risk free rate to use because it is a short term rate used for lending between banks. That is not a rate offered to individual investors for use of their funds. |
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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® 2024 Level I Curriculum, Volume 2, Module 2.