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Question
You are considering investing $1,000 in a T-bill that pays 0.05 and a risky portfolio, P, constructed with two
risky securities, X and Y. The weights of X and Y in P are 0.60 and 0.40, respectively. X has an expected rate
of return of 0.14 and variance of 0.01, and Y has an expected rate of return of 0.10 and a variance of 0.0081.
If you want to form a portfolio with an expected rate of return of 0.11, what percentages of your money must
you invest in the T-bill and P, respectively?
A. 0.25; 0.75
B. 0.19; 0.81
C. 0.65; 0.35
D. 0.50; 0.50
E. Cannot be determined.
Answer
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Related questions
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B. risk arbitrage.
C. option arbitrage.
D. equilibrium arbitrage.
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An important difference between CAPM and APT is
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B. CAPM assumes many small changes are required to bring the market back to equilibrium; APT assumes a few large changes are required to bring the market back to equilibrium.
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Q:
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A. I and III
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Q:
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Q:
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II) unique risk
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A. I, III, and IV
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Q:
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Q:
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Q:
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Q:
Which statement about portfolio diversification is correct?
A. Proper diversification can eliminate systematic risk.
B. The risk-reducing benefits of diversification do not occur meaningfully until at least 50-60 individual securities
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C. Because diversification reduces a portfolio's total risk, it necessarily reduces the portfolio's expected return.
D. Typically, as more securities are added to a portfolio, total risk would be expected to decrease at a
decreasing rate.
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Q:
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A. is likely to be higher in an increasing market.
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Q:
Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 10%
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Q:
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A. 0.24; 0.76
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Q:
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A. 1.5%; 1.9%
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Q:
The variance of a portfolio of risky securities
A. is a weighted sum of the securities' variances.
B. is the sum of the securities' variances.
C. is the weighted sum of the securities' variances and covariances.
D. is the sum of the securities' covariances.
E. None of the options are correct.
Q:
You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a
T-bill with a rate of return of 0.03.
What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to
form a portfolio with an expected return of 0.08?
A. 85% and 15%
B. 75% and 25%
C. 62.5% and 37.5%
D. 57% and 43%
E. Cannot be determined.
Q:
An investor invests 35% of his wealth in a risky asset with an expected rate of return of 0.18 and a variance of
0.10 and 65% in a T-bill that pays 4%. His portfolio's expected return and standard deviation are __________
and __________, respectively.
A. 0.089; 0.111
B. 0.087; 0.063
C. 0.096; 0.126
D. 0.087; 0.144