Which of the following statements about the risk-free asset is correct?
A) The risk-free asset is defined as an asset for which there is uncertainty regarding the expected rate of return.
B) The standard deviation of return for the risk-free asset is equal to zero.
C) The standard deviation of return for the risk-free asset cannot be zero, since division by zero is undefined.
D) Choices a and b.
E) Choices a and c.

Question

Quizplus · Accepted Answer

The risk-free asset is defined as an asset with no risk of default or loss of principal, and its rate of return is known with certainty. Therefore, the standard deviation of return for the risk-free asset is equal to zero, as there is no variance in its returns. Choice A is incorrect because the risk-free asset is defined as having no uncertainty in its expected rate of return. Choice C is incorrect because division by zero does not apply in this context, as the standard deviation of return is simply undefined in the case of the risk-free asset.

Which of the Following Statements About the Risk-Free Asset Is