Which of the following statements is/are true with respect Capital Market Line (CML)? I. It is the line passing from risk-free rate through market portfolio. II. The slope of CML is called market price of risk. III. CML fails to express equilibrium pricing relationship between expected return and standard deviation for all efficient portfolios lying along the line.

Related MCQs

• The alpha of an active portfolio is 1%. The expected return on the market index is 16%. The variance of the return on the market portfolio is 4%. The nonsystematic variance of the active portfolio is 1%. The risk-free rate of return is 8%. The beta of the active portfolio is 1.05. The optimal proportion to invest in the active portfolio is __________.
• An Investor can form a portfolio that lies to the right of the optimal risky portfolio on asset allocation line by I. Lend some money at the risk free rate and invest the remainder in the optimal risky portfolio. II. Borrow some money at the risk free rate and invest in the optimal risky portfolio III. Such a portfolio cannot be formed IV. Invest only in risky assets
• Analysis carried out on the performance of a fund for last year is compiled as under: Total selectivity 2.50% Net selectivity 1.53% of portfolio 0.90 Return on market index 13.00% Standard deviation of market returns 13.50% Risk free return, Rf 8.00% The total risk ( i) of portfolio is
• The beta of an active portfolio is 1.20. The standard deviation of the returns on the market index is 20%. The nonsystematic variance of the active portfolio is 1%. The standard deviation of the returns on the active portfolio is __________.
• Which of the following statements is/are true with respect to feasible set of portfolio? I. Feasible set is also known as opportunity set. II. It represents all the portfolios that could be formed from group of N securities. III. Feasible set is also called efficient set
• Depending upon the investor’s preferences and the market opportunities an investor’s portfolio is the portfolio that I. Maximizes her expected utility. II. Maximizes her risk. III. Minimizes both her risk and return. IV. Maximizes her expected profit.
• Which of the statements is/are false regarding Arbitrage Pricing Theory (APT)? I. APT assumes that return on any asset can be expressed as a linear function of a set of market factors or indexes. II. The arbitrage price line indicates relation between unsystematic risk and the expected return of an asset. III. While deriving the APT model, APT assumes that the error term can be reduced to zero through appropriate diversification.
• The risk-free rate and the expected market rate of return are 0.06 and 0.12, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on security X with a beta of 1.2 is equal to
• The risk-free rate and the expected market rate of return are 0.056 and 0.125, respectively. According to the capital asset pricing model (CAPM), the expected rate of return on a security with a beta of 1.25 is equal to
• At the prevailing environment, the Capital Market Line (CML) equation for a portfolio is given as E(ri),% = 8 + 0.36 ?i The ex-ante SML equation for the same portfolio i is E(ri),% = 8 + 5.50 ?i Therefore, the variance of market portfolio is approximately