Hello,
Can some one please assit with Kaplan Schweser Problem 38 Exam book 1 Exam 3 - Morning.
The questions ask
Which is the most accurate regarding the seperation therom?
a) an investor optimal portfolio is independent of the investors risk aversion
b) …
c) An investors choice of risky assets does not depend on his/her degree of risk aversion
Need help understanding the difference between a an c
it is A… you can determine optimal portfolio without knowing investor risk aversion… because the weights gives you the best risk for expected returns, then with a given riskfree asset you’ll get the newportfolio… risk aversion comes into play in chosing the weight between optimal portfolio and riskfree asset… peace
Hey, that was my thinking as well but the book says C
Active portlio managment and seperation therom supports the conclusion that all investors should hold a combinaton of the Risk free asset and the market portfolio. This allows the portfolio manager to identify the optimal risk potfolio indpendent to the investors risk aversion. The optimal portfolio for an indivisual investor is a combination of the risk free asset and the optimal risky ASSET portfolio that does not depend on investors degree of risk averison …
Still lost with this one, ha
The answer is C.
Tobin’s Separation Theorem says that everyone picks a portfolio on the CML. Thus, the choice of risky assets is the same for everyone; what differs is the percentage of risky assets and the % of the risk-free asset.
Thus, one’s choice of which risky assets to hold is independent of risk aversion: the risky assets chosen are the same for everyone.
The optimal portfolio, on the other hand, does depend on one’s risk aversion: that’s where along the CML you pick your portfolio.
which page in book man ?
Page 150
Great explanation! Love it!
You’re too kind.
Good to hear.
magic sir please answer my q on Pm also in othe rthread
AH crap yeah… “A” would have been right if it was OPTIMAL RISKY PORTFOLIO. which is what I was thinking… wording can be a very very big thing.
Yea, I hate that kind of stuff.
WOW - Clever !!! I was thinking they were referincing the optimal risky asset portfolio, not the optimal portfolio.
Thanks
Thanks.
You’re quite welcome.