A risk-free asset has a guaranteed return, typically with a very low standard deviation of return (i.e. low or zero risk). Therefore, it has a standard deviation of return of zero, as stated in choice C. The other choices are incorrect in describing the characteristics of a risk-free asset.

Solved

A Riskfree Asset

Question 20

Multiple Choice

A riskfree asset

A) has a return correlation coefficient with securities of 1.
B) has a negative return covariance with each security.
C) has a standard deviation of return of zero.
D) has a positive return covariance with many securities.

Correct Answer: