Q734
Relationship between risk free asset and a single risky asset are always
A.
linear
AnswerB.
non-linear
C.
efficient
D.
effective
Answer: Option A
Solution
Answer: Option A
Solution:
Relationship between risk free asset and a single risky asset are always linear. The covariance of the risk-free asset with any risky asset or portfolio will always equal zero. Similarly the correlation between any risky asset and the risk-free asset would be zero. Combining a Risk-Free Asset with a Risky Portfolio Expected return: the weighted average of the two returns is a linear relationship.