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Question 1 (1 point) In a portfolio consisting of the risk free asset and/or a risky portfolio P, what is the expected return if you borrow 25% of your net worth and invest the proceeds in the risky asset, ErP=15{"version":"1.1","math":"\(Er_P=15%\)"}, rf=5{"version":"1.1","mat h":"\(r_f=5%\)"}, and σM=20{"version":"1.1","math":"\(\sigma_M=20%\)"}? Hint: the given answer may involve short-selling or buying on margin. Question 1 options: 20.0% 15.0% 17.5% 5.0% 18.75% Question 2 (1 point) The capital allocation line will generally be a straight line _____. (Assume that no short-selling of any risky security is allowed.) Question 2 options: when the risk-free rate is higher than the expected returns of all risky-securities. when investors are risk-neutral when investors can borrow and lend (invest) at the risk-free rate when all security pairs have zero correlation Question 3 (1 point) Based on the long-run historical evidence, a market portfolio of US stocks (similar to the S&P 500 index) has an average annual excess return (above the risk-free rate) closest to ____. (Look it up in BKM.) Question 3 options: 16% 4% 8% 32% View hint for Question 3 Question 4 (1 point) According to the mean-variance criterion, among the following choices, the investment with expected return ____ and return standard deviation ____ dominates (would be preferred to) all of the others. Question 4 options: 15%, 20% 15%, 25% 10%, 20% 10%, 25% Question 5 (1 point) Securities A and B have risks ...
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