Assume an Economy in Which There Are Three Securities: Stock $\sigma$

question 25

Multiple Choice

Assume an economy in which there are three securities: Stock A with rA = 10% and $\sigma$ A = 10%; Stock B with rB = 15% and $\sigma$ B = 20%; and a riskless asset with rRF = 7%. Stocks A and B are uncorrelated (rAB = 0) . Which of the following statements is most CORRECT?

• A) The expected return on the investor's portfolio will probably have an expected return that is somewhat above 15% and a standard deviation (SD) of approximately 20%.
• B) The expected return on the investor's portfolio will probably have an expected return that is somewhat below 10% and a standard deviation (SD) of approximately 10%.
• C) The expected return on the investor's portfolio will probably have an expected return that is somewhat below 15% and a standard deviation (SD) that is between 10% and 20%.
• D) The investor's risk/return indifference curve will be tangent to the CML at a point where the expected return is in the range of 7% to 10%.

Describe the World Bank and its major objective.

Understand the impact of inflation rates on foreign exchange markets and currency valuation.

Explain the mechanisms of the international gold standard and its effects on exchange rates.

Analyze the relationship between the price of currencies in terms of each other.

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Definitions:

Taxi Cabs

Licensed vehicles for hire that provide passenger transport services for a fare, traditionally hailed on the street or booked in advance.

Cab Fares

Charges levied for the service of transporting individuals in taxicabs, typically based on distance traveled and time taken.

Operating Cost

Expenses associated with the day-to-day functioning of a business, such as rent, utilities, and salaries.

Subway Fares

The charges or fees paid by passengers for using the subway system for transportation.