CFA Practice Question

There are 136 practice questions for this study session.

CFA Practice Question

The risk-free rate is 1.8%. You have a choice of investing in two funds:

You want to accept a maximum volatility of 17.4% only. You best option is to ______

A. invest in Fund A only.
B. hold some cash and invest the rest in Fund B.
C. invest in both Fund A and Fund B.
Correct Answer: B

The Sharpe ratio of Fund B is higher, so you want to invest in Fund B only. This is known as two-fund separation: an investor'??s portfolio should consist of two funds,?? one of which is the risk-free asset, and the other the risky asset portfolio with the highest Sharpe ratio.

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