Assume that an investor is concerned with investing in not only risky assets, X, but also the risk-free asset RF. The standard deviation of such a portfolio would be calculated as: A) $\sigma$_p = $\rho$_RF,X$\sigma$_RF$\sigma$_X B) $\sigma$_p = (1 - w_X)$\sigma$_RF C)$\sigma$_p = (1 - w_RF)$\sigma$_X D)$\sigma$_p = (1 - w_X)$\sigma$_X

Question

Quizplus · Accepted Answer

The standard deviation of a portfolio that includes a risk-free asset and a risky asset depends only on the standard deviation of the risky asset and the proportion of the portfolio invested in the risky asset. Since the risk-free asset has a standard deviation of zero, the overall portfolio's standard deviation is a function of the risky asset's standard deviation and the weight of the risky asset in the portfolio.

Assume That an Investor Is Concerned with Investing in Not σ\sigmaσ

Assume That an Investor Is Concerned with Investing in Not $\sigma$