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Basic Question 3 of 10

Consider the following three statements. Which are true?

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.
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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
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I just wanted to share the good news that I passed CFA Level I!!! Thank you for your help - I think the online question bank helped cut the clutter and made a positive difference.
Edward Liu

Edward Liu

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.