A Friend Brags That She Expects to Earn a Return

question 49

Multiple Choice

A friend brags that she expects to earn a return of 10.25% on her portfolio with a beta of 0.825.Can you match her performance with Stock X (12% return and a beta of 1.1) and the risk free asset that earns a 5% return? With what portfolio weights?

• A) Yes, 0.75 Stock X and 0.25 Risk Free Asset
• B) Yes, 0.25 Stock X and 0.75 Risk Free Asset
• C) Yes, 0.5 Stock X and 0.5 Risk Free Asset
• D) No

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Definitions:

African Americans

An ethnic category in the United States comprising people with either complete or partial lineage from black racial groups in Africa.

Prejudiced

Having preconceived opinions or judgments without just grounds or before sufficient knowledge.

Lorenz Curve

A graphical representation of the distribution of income or wealth within a society, showing the proportion of the total income earned by various segments of the population.

Diagonal

Often used in a geometric context, referring to a straight line connecting two nonadjacent corners or vertices of a polygon or polyhedron.