Assume That the Risk-Free Rate of Return Is 3% and the Market

question 86

Multiple Choice

Assume that the risk-free rate of return is 3% and the market portfolio on the Capital Market Line (CML) has an expected return of 11% and a standard deviation of 14%.How should you invest $100,000 if you are only willing to accept a total portfolio risk of 8%?

• A) Invest $140,000 in the market portfolio and by borrowing $40,000 at the risk-free rate.
• B) Invest $80,000 in the market portfolio and the remainder in the risk-free security.
• C) Invest $63,636.36 in the market portfolio and the remainder in the risk-free security.
• D) Invest $36,363.64 in the market portfolio and the remainder in the risk-free security.
• E) Invest $100,000 on another portfolio on the CML that does not contain any of the market portfolio or the risk-free security, but has a standard deviation of 8%.

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Definitions:

Interpretation

A psychoanalyst’s search for symbolic, hidden meanings in what the client says and does during therapy.

Psychodynamic Perspective

A psychological approach that emphasizes the dynamic interplay of unconscious and conscious processes in shaping personality and behavior.

Unconscious Conflicts

Internal struggles within a person that stem from repressed thoughts, emotions, or desires that the conscious mind is unaware of.

Transference

A psychological phenomenon where patients project feelings about important persons in their life onto a therapist or other figures of authority.