1. An investment in only one asset type has a worse risk-return tradeoff than an investment in a portfolio of a risk-free asset and a risky asset. This is because the correlation between the risk-free asset and the risky asset is equal to:

A. -1

B. 0

C. 1

2. Roger Phillips is a highly risk-averse investor. A majority of wealth is most likely to be invested in:

A. an optimal risky portfolio.

B. risk-free assets.

C. risky assets.

3. Which of the following statements is most likely to be correct?

A. The sum of an asset’s systematic variance and its nonsystematic variance of returns is equal to the asset’s total variance.

B. The sum of an asset’s systematic standard deviation and its nonsystematic standard deviation of returns is equal to the asset’s total risk.

C. The sum of an asset’s systematic returns and its nonsystematic returns is equal to the asset’s beta.