The market portfolio is most accurately described as:
A) The portfolio that follows market averages like the S&P/TSX or the S&P 500
B) The portfolio similar to the MSCI AC World index
C) The portfolio of all risky assets in the world weighted in their own proportions
D) The portfolio of all assets including risk-free assets

Question

Quizplus · Accepted Answer

The market portfolio is defined as the portfolio of all risky assets in the world, weighted in their own proportions. It is a theoretical concept and includes all risky assets, such as stocks, bonds, commodities, and derivatives, but excludes risk-free assets like Treasury bills. The market portfolio is the benchmark for all investors, and all investors together must hold the market portfolio. Therefore, it is not represented by any single index, like the S&P/TSX or the S&P 500, but rather encompasses all securities in the market. Option A and B are not accurate, as they only represent subsets of the market, while option D is not correct, as it includes risk-free assets.

The Market Portfolio Is Most Accurately Described As