Use the Information for the Question(s)below

question 112

Multiple Choice

Use the information for the question(s) below.
Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market.
-Assuming that Tom wants to maintain the current expected return on his portfolio,then the amount that Tom should invest in the market portfolio to minimize his volatility is closest to:

• A)100%.
• B)90%.
• C)125%.
• D)113%.

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Definitions:

Special Revenue Fund

A fund used by a government to account for revenue from specific sources that are legally restricted to expenditure for particular purposes.

Capital Projects Fund

A type of governmental accounting fund used to finance and track the costs of major capital improvements and constructions.

Permanent Fund

A fund established to provide a stable source of revenue for specific purposes, often funded by endowments or resources that generate interest or other income.