The Expected Return of Security a Is 12% with a Standard

question 8

Multiple Choice

The expected return of Security A is 12% with a standard deviation of 15%.The expected return of Security B is 9% with a standard deviation of 10%.Securities A and B have a correlation of 0.4.The market return is 11% with a standard deviation of 13% and the risk-free rate is 4%.Which one of the following is not an efficient portfolio, as determined by the lowest Sharpe ratio?

• A)100% invested in A is efficient
• B)100% invested in B is efficient
• C)41% in A and 59% B is efficient
• D)59% in A and 41% B is efficient

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Definitions:

Self-serving Bias

In attribution, the tendency for people to take personal credit for acts that yield positive outcomes and to deflect blame for bad outcomes by attributing them to external causes.

Fundamental Attribution Error

The tendency to overemphasize personality-based explanations for behaviors observed in others while underestimating the influence of situational factors.

Actor-observer Difference

The tendency to attribute one's own actions to situational factors while attributing others' actions to their personal characteristics.

Self-fulfilling Prophecy

A belief or expectation that influences actions in a way that causes the belief to become true.