I saw a question the other day that said
Assume you have only two assets to build a portfolio. Name and explain three scenarios under which a completely risk-free portfolio can be formed?
I have a few questions:
Is this poorly worded? Surely there are no assets that are completely risk-free. Should this be written as "virtually risk-free"? If not, how can an asset have absolutely zero risk?
The only assets I can think of that would be virtually risk-free are AAA-rated corporate bonds and low-yield western government bonds, i.e. US treasuries. So from my knowledge of only two asset-types that are virtually risk-free, you could only construct one scenario - a portfolio consisting of both US treasuries and AAA corporate bonds. Where is my knowledge lacking?
What is the correct answer?