Use the Following Information to Answer the Question(s)below

question 87

Multiple Choice

Use the following information to answer the question(s) below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio) : growth stocks and value stocks.Assume that these two portfolios are equal in size (market value) ,the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk-free rate is 3.5%.
-The expected return on the market portfolio (which is a 50-50 combination of the value and growth portfolios) is closest to:

• A)12.0%.
• B)13.5%.
• C)15.0%.
• D)19.0%.

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Definitions:

Foreign Portfolio Investment

Investment in financial assets from another country, such as stocks or bonds, that does not grant the investor control over the business entities in which the investment is made.

U.S. Government Bonds

Securities issued by the United States Department of the Treasury to finance government spending.

Net Capital Outflow

The difference between a nation's savings and its domestic investments, representing international transfers of capital.

U.S. Assets

Assets located within the United States that may include real estate, stocks, bonds, and other financial instruments owned by individuals, companies, or the government.