16.In the trade-off line,the risk premium depends on (a)the risk premium of the risky asset (b)the proportion of the portfolio invested in the risky asset (c)the risk premium of the riskless asset (d)both a and b Answer:(d) 17.When one of the two assets in a portfolio is riskless,the standard deviation of its rate of return and its correlation with other asset are (a)greater than zero but less than positive one (b)less than zero but greater than negative one (c)zero (d)none of the above Answer:(c) 18.The expected rate of return on a risky asset is 0.16 and the riskless rate is 0.07.The standard deviation of the risky asset is 0.2.What happens to the slope of the trade-off line if the riskless rate changes to.06 per year and the expected return on the risky asset changes to 0.15? (a)no change (b)the slope rises from 0.45 to 0.5 (c)the slope falls from 0.5 to 0.45 (d)the slope falls from 0.45 to 0.4 Answer:(a) 19.A portfolio contains a riskless asset with an expected rate of return of 0.06 and a risky asset with an expected rate of return of 0.15.The standard deviation of the risky asset is 0.25.If the expected rate of return of this portfolio is 0.10,what is its standard deviation? (a0.11 (b)0.14 (c)0.22 (d0.44 Answer:(a) 12-512-5 16. In the trade-off line, the risk premium depends on ________ (a) the risk premium of the risky asset (b) the proportion of the portfolio invested in the risky asset (c) the risk premium of the riskless asset (d) both a and b Answer: (d) 17. When one of the two assets in a portfolio is riskless, the standard deviation of its rate of return and its correlation with other asset are ________. (a) greater than zero but less than positive one (b) less than zero but greater than negative one (c) zero (d) none of the above Answer: (c) 18. The expected rate of return on a risky asset is 0.16 and the riskless rate is 0.07. The standard deviation of the risky asset is 0.2. What happens to the slope of the trade-off line if the riskless rate changes to .06 per year and the expected return on the risky asset changes to 0.15? (a) no change (b) the slope rises from 0.45 to 0.5 (c) the slope falls from 0.5 to 0.45 (d) the slope falls from 0.45 to 0.4 Answer: (a) 19. A portfolio contains a riskless asset with an expected rate of return of 0.06 and a risky asset with an expected rate of return of 0.15. The standard deviation of the risky asset is 0.25. If the expected rate of return of this portfolio is 0.10, what is its standard deviation? (a) 0.11 (b) 0.14 (c) 0.22 (d) 0.44 Answer: (a)