You Invest $100 in a Risky Asset with an Expected

question 33

Multiple Choice

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.21 and a T-bill with a rate of return of 0.045. A portfolio that has an expected outcome of $114 is formed by

• A) investing $100 in the risky asset.
• B) investing $80 in the risky asset and $20 in the risk-free asset.
• C) borrowing $46 at the risk-free rate and investing the total amount $146 in the risky asset.
• D) investing $43 in the risky asset and $57 in the risk-free asset.
• E) Such a portfolio cannot be formed.

Comprehend the relationship between discount rate and present value in financial analysis.

Understand the internal rate of return as a tool for making investment decisions.

Recognize the significance of the time value of money in financial decision-making.

Calculate future and present values of investments under various scenarios.

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