A Portfolio Consists of Two Securities: a Risk-Free Asset and an Equity

question 75

Multiple Choice

A portfolio consists of two securities: a risk-free asset and an equity security.The expected return on the risk-free asset is 4.75%.The expected return of the equity security is 17% with a standard deviation of 23%.What is the portfolio expected return if the standard deviation for the portfolio is 18%?

• A)7.41%
• B)14.34%
• C)18.00%
• D)20.40%

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Definitions:

Income Elasticity

A measure of how much the demand for a product changes in response to a change in consumers' income.

Income Elasticity

A measure of how the quantity demanded of a good or service changes in response to a change in consumer income.

Inferior Good

A type of good for which demand decreases when consumers' income increases, opposite to normal goods.

Perfectly Inelastic

Describes a situation where the demand for a good does not change in response to a change in price.