Exhibit 712
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)

question 12

Multiple Choice

Exhibit 7.12
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) $$\begin{array} { c c } \text { Asset 1 } & \text { Asset 2 } \\\hline E \left( R _ { 1 } \right) = .12 & E \left( R _ { 2 } \right) = .16 \\E \left( \sigma _ { 1 } \right) = .04 & E \left( \sigma _ { 2 } \right) = .06\end{array}$$
-Refer to Exhibit 7.12. Calculate the expected returns and expected standard deviations of a two stock portfolio when r_1,2 = .80 and w₁ = .60.

• A).144 and .0002
• B).144 and .0018
• C).136 and .0045
• D).136 and .0455
• E).136 and .4554

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Definitions:

Risk-Free Rate

The hypothesized return on an investment that carries no risk, often linked with government bonds.

Minimum Required Return

The lowest acceptable return on an investment, considering the risk and the cost of capital.

Expected Return

The anticipated return on an investment, taking into account the probabilities of each potential outcome.

Equity

The owners' stake in a company, represented by the amount of capital contributed plus any profits or minus any losses.