You Invest $100 in a Risky Asset with an Expected

question 55

Multiple Choice

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05. 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 0.09?

• A)85% and 15%
• B)75% and 25%
• C)67% and 33%
• D)57% and 43%

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Definitions:

Linear Model

A mathematical model that assumes a linear relationship between the input variables (x) and a single output variable (y), where y can be calculated from a linear combination of the input variables.

Scatter Plot

A graphical representation that displays the relationship between two quantitative variables by using dots.

Slope

In mathematics, the slope represents the steepness or angle of a line, defined as the ratio of the vertical change to the horizontal change between two points on the line.

Simple Linear Regression

A statistical method for modeling the relationship between a single independent variable and a dependent variable by fitting a linear equation to observed data.