Daring Dora Holds 90% of Her Assets in High-Technology Stocks

question 33

Multiple Choice

Daring Dora holds 90% of her assets in high-technology stocks, earning 12%, and 10% in long-term government bonds, earning 6%. The expected return on her portfolio:

• A) is 6%.
• B) is 9%.
• C) is 11.4%
• D) is 12%.
• E) cannot be determined without knowing what the dollar value of her assets is.

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Definitions:

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital where each category of capital is proportionately weighted.

Capital Structure

The particular combination of debt and equity that a company uses to finance its overall operations and growth.

Financial Risks

The possibility of losing money on an investment or business operation due to market fluctuations, default, or other financial uncertainties.

Homemade Leverage

The use of personal borrowing to change the overall amount of financial leverage to which an individual or household is exposed.