CFA Practice Question

There are 294 practice questions for this study session.

CFA Practice Question

A risk-free asset ______

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.
Correct Answer: I and IV

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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