Consider the Following Probability Distribution for Stocks a and B

question 48

Multiple Choice

Consider the following probability distribution for stocks A and B: $\begin{array}{cccc}\text { State } & \text { Probability } & \text { Return on Stock A } & \text { Return on Stock B } \\1 & 0.10 & 10 \% & 8 \% \\2 & 0.20 & 13\% & 7\% \\3 & 0.20 & 12\%& 6\% \\4 & 0.30 & 14\%& 9\% \\5 & 0.20 & 15\% & 8 \%\end{array}$
The expected rate of return and standard deviation of the global minimum variance portfolio, G, are __________ and __________, respectively.

• A) 10.07%; 1.05%
• B) 8.97%; 2.03%
• C) 10.07%; 3.01%
• D) 8.97%; 1.05%

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Definitions:

Externality Problem

A situation where the actions of individuals or businesses result in benefits or costs to others that are not reflected in market prices.

Negative Externality

A cost that affects a party who did not choose to incur that cost, often leading to market failures when not properly accounted for.

Sierra Club

An environmental organization that promotes the conservation of natural environments and influences public policy through advocacy and education.

Externalities

Economic side effects or consequences that affect uninvolved third parties; can be either positive or negative.