Suppose the Expected Return for the Market Portfolio and Risk-Free

question 23

Multiple Choice

Suppose the expected return for the market portfolio and risk-free rate are 13% and 3% respectively.Stocks A,B,and C have Treynor measures of 0.24,0.16,and 0.11,respectively.Based on this information an investor should

• A) Buy stocks A, B, and C
• B) Buy stocks A and B and sell stock C
• C) Buy stock A and sell stocks B and C
• D) Sell stocks A, B, and C
• E) Hold stocks A, B, and C

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Definitions:

Progressive Taxes

A tax system in which the rate of taxation increases as the taxable amount increases, thereby placing a higher financial burden on individuals or entities with higher incomes.

Regressive Taxes

Taxes that take a larger percentage of income from low-income earners than from high-income earners, inversely related to the taxpayer's ability to pay.

Flat Tax

A tax system with a constant marginal rate, usually applied to individual or corporate income.

Federal Reserve Board

The governing body of the Federal Reserve System, which is responsible for setting monetary policy in the United States.