Portfolio Management - Not to confuse you..

CFA Level I
#1

The market portfolio in the Capital Market Theory contains which types of investments? A) All stocks in existence. B) All stocks and bonds in existence. C) All risky assets in existence. D) All risky and risk-free assets in existence.

#2

C) All risky assets in existence.

#3

Why not “All risky and risk-free assets in existence” after all CAPM need a risk-free asset :)?

#4

the market portfolio is a completely diversified portfolio (all risky assets) capital market line represents a combination of the market porfolio + risk-free asset

#5

hmmm so whats the answer?? grrr i really really dont like this “detail” questions.

#6

C would be my answer also… I was thinking D also, and correct me if I’m wrong, but with the CML (Capital Market Line), you can buy a risk-free asset and also invest into the market portfolio. So your weighted portfolio would have a percentage into the market and also into a risk-free asset. I guess that’s where the notion comes where for your portfolio, you can lend money and buy into the market or you can leverage, borrow money to invest into the market and make a higher return.

#7

D is right .no doubts

#8

you combine the market portfolio with the risk free assets when you are doing the asset allocation part of PM. this implies that M clearly doesnt include the risk free asset

#9

D

#10

C

#11

C all risky assets. Even think about the cml, at the market portfolio you are neither borrowing or lending. So no exposure to the risk free asset. Note, this post is from my crackberry in a diner. I have problems…

#12

D

#13

C’mon guys market portfolio -> risky assets only, completely diversified=all unsysRisk offset Rf: on the Y axis -> risk free portfolio in between these two and on the CML is the blend NB: all the portfolio that are on the CML are perfectly positively correlated) and completely diversified. M is set to give the max set of risk/return because he is on both CML and Efficient frontier

#14

Ok, Just to stop the debate. The answer is C. market portfolio is comprised of all risky assets. If you combine the market portfolio with risk-free assets, the effect is the capital market line, which represents all the possible cominations of risk-free assets and the market portfolio.

#15

wow has the original poster still not posted the answer?! =_=

#16

C’mon the answer is C. Positively.

#17

The answer is C, no second thoughts about it!