Julie Wants to Create a $5,000 Portfolio

question 36

Multiple Choice

Julie wants to create a $5,000 portfolio.She also wants to invest as much as possible in a high risk stock with the hope of earning a high rate of return.However, she wants her portfolio to have no more risk than the overall market.Which one of the following portfolios is most apt to meet all of her objectives?

• A)Invest the entire $5,000 in a stock with a beta of 1.0
• B)Invest $2,500 in a stock with a beta of 1.98 and $2,500 in a stock with a beta of 1.0
• C)Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0
• D)Invest $2,500 in a stock with a beta of 1.0, $1,250 in a risk-free asset, and $1,250 in a stock with a beta of 2.0
• E)Invest $2,000 in a stock with a beta of 3, $2,000 in a risk-free asset, and $1,000 in a stock with a beta of 1.0

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Definitions:

Useful Life

The period over which an asset is expected to be available for use by an entity; or the number of production or similar units expected to be obtained from the asset by an entity.

Management Fee

A charge levied by an investment manager for managing an investment fund's assets, often calculated as a percentage of the assets under management.

Supplying Service

The act of providing value to customers through the delivery of services, often entailing expertise, labor, or support in various sectors like technology, hospitality, or consultancy.

Cost

The amount of cash or cash equivalents paid or the fair value of other consideration given to acquire an asset at the time of its acquisition or construction.