An Investor Constructs a Portfolio with a 75% Allocation to a Stock

question 42

Multiple Choice

An investor constructs a portfolio with a 75% allocation to a stock index and a 25% allocation to a risk free asset.The expected returns on the risk-free asset and the stock index are 3% and 10%,respectively.The standard deviation of returns on the stock index is 14%.Calculate the expected standard deviation of the portfolio.

• A) 7.5%
• B) 9.0%
• C) 10.5%
• D) 11.5%
• E) 13.0%

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Definitions:

Ending Inventory

The total value of goods available for sale at the end of an accounting period, calculated by adding purchases to beginning inventory and subtracting cost of goods sold.

Net Purchases

The total amount spent on purchases of goods for resale after subtracting any purchase returns, allowances, and discounts.

Operating Expenses

Costs associated with running a business's day-to-day operations, excluding the cost of goods sold.

Income Summary

An account in which revenues and expenses are summarized, used in the closing process to prepare the accounts for the next period.