Exhibit 714
Use the Information Below for the Following Problem(S)
Stocks

question 24

Multiple Choice

Exhibit 7.14
Use the Information Below for the Following Problem(S)
Stocks A and B have a correlation coefficient of -0.8. The stocks' expected returns and standard deviations are in the table below. A portfolio consisting of 40% of stock A and 60% of stock B is constructed.
$$\begin{array} { c c c } \text { Stack } & \text { Expected Return } & \text { Standard Devintion } \\\hline \text { A } & 20 \% & 25 \% \\B & 15 \% & 19 \%\end{array}$$
-Refer to Exhibit 7.14.What percentage of stock A should be invested to obtain the minimum risk portfolio that contains stock A and B?

• A) 35%
• B) 42%
• C) 58%
• D) 65%
• E) 72%

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Definitions:

Price Increase

An upward movement in the price of a good, service, or asset, often due to factors like demand growth or supply constraints.

Long Position

Holding an asset with the expectation that it will increase in value, often contrasted with taking a short position, betting on a decline in value.

Futures Contracts

Futures contracts are standardized legal agreements to buy or sell a particular commodity or financial instrument at a predetermined price at a specified time in the future.

Futures Exchanges

Marketplaces where futures contracts and options on futures contracts are traded, facilitating the buying and selling of commodities or financial instruments at a predetermined future date.