CFA Level I · CFA Level I Exam · Portfolio Risk and Return: Part I
Two investors hold portfolios on the same capital allocation line, but Investor X holds a higher proportion in the risky portfolio than Investor Y. Which statement most likely explains the difference?
Investor X is most likely less risk averse than Investor Y. Both are on the same line with the same risky portfolio and Sharpe ratio, so the different risky weight reflects only different risk tolerance.
- AInvestor X is less risk averse than Investor Y.Correct
- BInvestor X has a lower Sharpe ratio than Investor Y.
- CInvestor X holds a different risky portfolio than Investor Y.
Explanation
All investors on the same CAL hold the same risky portfolio and share the same Sharpe ratio. They differ in where they sit on the line, which reflects risk tolerance. A higher risky weight indicates lower risk aversion.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Risk and Return: Part I shows your real accuracy, how long you take and where you lose marks.
More Portfolio Risk and Return: Part I questions
- Which statement about covariance and correlation is most accurate?
- Two risky assets have a correlation of +1.0 between their returns. A portfolio is formed by combining them in positive weights. The standard…
- An investor combines a risk-free asset with a single risky portfolio. The expected return of the combined portfolio, when plotted against it…
- Two assets have a covariance of 0.0090. Asset X has a standard deviation of 15% and Asset Y has a standard deviation of 20%. The correlation…
- A portfolio consists of 40% in Asset X with an expected return of 8% and 60% in Asset Y with an expected return of 12%. The expected return …
- An analyst wants to estimate the return an investor would expect to earn in a single future period from a series of past annual returns that…