Description of this paper

You can invest in a risky asset with a positive risk premium

Description

solution


Question

You can invest in a risky asset with a positive risk premium and returns in each of the two years that will be identically distributed and uncorrelated, or you can invest in the risky asset for only 1 year and then invest the proceeds in a risk-free asset. Which of the following statements about the first investment alternative (compared with the second) are true?;a. its 2year risk premium is the same as the second;b. the standard deviation of its 2year return is the same;c. its annualized standard deviation is lower;d. its sharpe ratio is higher;e. it is relatively more attractive to investors who have lower degrees of risk aversion.

 

Paper#33388 | Written in 18-Jul-2015

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