Explain how differences in allocations between the risk-free security and the market portfolio...

Question:

Explain how differences in allocations between the risk-free security and the market portfolio can determine the level of market risk.

Risk Free Rate

The risk free rate refers to the amount of interest earned on a riskless investment. A riskless investment refers to an investment with zero percent chance of default. The common proxy of the risk free rate is the interest rate earned on a U.S. Treasury security, because U.S. government debt is perceived as having zero chance of default.

Answer and Explanation:

Investing all of our money in a diversified portfolio of stocks in the market will give us a return on our portfolio equal to the index or the average...

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Investment Portfolios: Asset Allocation & Diversification

from CFP Certification Exam Study Guide - Certified Financial Planner

Chapter 8 / Lesson 6
903

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