Which of the following statements about the risk-free asset is correct?
A) The risk-free asset is defined as an asset for which there is uncertainty regarding the expected rate of return.
B)The standard deviation of return for the risk-free asset is equal to zero.
C) The standard deviation of return for the risk-free asset cannot be zero, since division by zero is undefined.
D) Choices a and b.
E) Choices a and c.

Question

Which of the following statements about the risk-free asset is correct?
A) The risk-free asset is defined as an asset for which there is uncertainty regarding the expected rate of return. 
B)The standard deviation of return for the risk-free asset is equal to zero.
C) The standard deviation of return for the risk-free asset cannot be zero, since division by zero is undefined.
D) Choices a and b.
E) Choices a and c.

Quizplus · Accepted Answer

The risk-free asset is defined as an asset that has a certain rate of return, i.e., there is no uncertainty regarding the expected rate of return. Therefore, the standard deviation of return for the risk-free asset is equal to zero. Choice A is incorrect because uncertainty regarding the expected rate of return is a characteristic of risky assets, not the risk-free asset. Choice C is incorrect because the standard deviation of return for the risk-free asset is zero, not undefined.

Which of the Following Statements About the Risk-Free Asset Is