Joan Summers Has $100,000 to Invest and Is Considering Two

question 121

Essay

Joan Summers has $100,000 to invest and is considering two alternatives. She can buy a risk free asset that will pay 10% or she can invest in a stock that has a 0.4 chance of paying 15%, a 0.3 chance of paying 18%, and a 0.3 chance of providing a 6% return. Joan plans to invest $70,000 in the stock and $30,000 in the risk free asset.
a. Determine the expected percentage return on the stock and the standard deviation.
b. Calculate the weighted average return on the portfolio, given the planned investment strategy outlined above.
c. Determine the standard deviation for the portfolio.
d. Write the equation that represents the budget line in the risk-return tradeoff. What is the slope of the budget line? Interpret this slope.

---

Definitions:

ABC Method

A time management technique that helps prioritize tasks by categorizing them into three groups; A (most important), B (important), and C (least important).

Americans with Disabilities Act

A civil rights law that prohibits discrimination against individuals with disabilities in all areas of public life, including jobs, schools, transportation, and all public and private places that are open to the general public.

Transcribing Lectures

The process of listening to lecture recordings and converting the spoken words into written text for study or documentation purposes.

Service Learning

A teaching and learning strategy that integrates meaningful community service with instruction and reflection to enrich the learning experience and strengthen communities.