Consider Two Perfectly Negatively Correlated Risky Securities a and B

question 9

Multiple Choice

Consider two perfectly negatively correlated risky securities A and B. A has an expected rate of return of 12% and a standard deviation of 17%. B has an expected rate of return of 9% and a standard deviation of 14%. The risk-free portfolio that can be formed with the two securities will earn _____ rate of return.

• A) 9.5%
• B) 10.4%
• C) 10.9%
• D) 9.9%

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Definitions:

Innovation

The process of translating an idea or invention into a good or service that creates value or for which customers will pay.

Early Majority

A segment of a population that adopts new ideas or technologies just before the average person.

External Motivation

Motivation that is driven by external rewards or pressures rather than personal desire or interest.

Late Majority

A category of individuals in the diffusion of innovation theory who adopt new products, ideas, or technologies after the average member of a society.