Exhibit 78
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 89

Multiple Choice

Exhibit 7.8
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } \text { Asset } ( \mathrm { A } ) & \text { Asset } ( \mathrm { B } ) \\\hline \mathrm { E } \left( \mathrm { R } _ { \mathrm { A } } \right) = 10 \% & \mathrm { E } \left( \mathrm { R } _ { \mathrm { B } } \right) = 14 \% \\\left( \sigma _ { \mathrm { A } } \right) = 7 \% & \left( \sigma _ { \mathrm { B } } \right) = 8 \% \\W _ { \mathrm { A } } = 0.7 & W _ { \mathrm { B } } = 0.3 \\\mathrm { COV } \\\mathrm { A,B } & = 0.0013\end{array}$$
-Refer to Exhibit 7.8. What is the expected return of a portfolio of two risky assets if the expected return E(R_i) , standard deviation ( $\sigma$ _i) , covariance (COV_i,j) , and asset weight (W_i) are as shown above?

• A)6.4%
• B)9.1%
• C)10.2%
• D)10.8%
• E)11.2%

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Definitions:

Velocity of Money

The speed at which currency is transferred from one deal to another and the frequency of usage of a currency unit within a specific timeframe.

Unemployment

The state of being without a job despite actively looking for work, usually measured as a percentage of the labor force.

PQ Remains Same

A situation in economic terms where the price level (P) and quantity (Q) of goods and services in the market stay unchanged over a period.

Velocity V

Velocity V typically refers to the velocity of money, a measurement of the rate at which money is exchanged in an economy.