eekanath

"How Risk-Free Asset can influence portfolio expected risk and return prospective?"

"In a class group discussion I was asked to describe the influence-ment of the Risk- Free Asset on the portfolio expected risk and return prospective?"
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captainamerica
"• An asset with zero standard deviation • Zero correlation with all other risky assets • Provides the risk-free rate of return (RFR) • Will lie on the vertical axis of a portfolio graph • The existence of a risk-free asset resulted in deriving a capital market line (CML) that became the relevant frontier • The covariance of the risk-free asset with any risky asset or portfolio will always equal zero. Similarly the correlation between any risky asset and the risk-free asset would be zero. • Combining a Risk-Free Asset with a Risky Portfolio Expected return: the weighted average of the two returns is a linear relationship. • Therefore, the standard deviation of a portfolio that combines the risk-free asset with risky assets is the linear proportion of the standard deviation of the risky asset portfolio. Source: http://in.docsity.com/en-docs/Capital_Market_Theory_-_Security_Analysis_and_Portfolio_Management_-_Solved_Quiz_"
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raaj
Risk-free interest rate is the theoretical rate of return of an investment with no risk of financial loss.
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