Solve the Problem

question 69

Multiple Choice

Solve the problem. Round rates to the nearest whole percent and dollar amounts to the nearest cent.
-The Galerie d'Art paid $138.60 for a limited edition Graux print. The original selling price was $180.18, but this was marked down 25% to make room for incoming pieces. If operating expenses are 28% of cost, find the operating loss and the absolute loss.

• A)operating loss: $45.04
• Absolute loss: $3.46
• B)operating loss: $3.46
• Absolute loss: $42.27
• C)operating loss: $42.27
• Absolute loss: $45.04
• D)operating loss: $42.27
• Absolute loss: $3.46

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Definitions:

Single Index Model

A simplified model to estimate the return of a security based on the return of the market as a whole and the security's sensitivity to the market.

Portfolio's Sigma

A statistical term that represents the standard deviation of returns of an investment portfolio, reflecting its risk.

Mean-Variance Efficient Portfolio

A portfolio construction theory that suggests the best investment portfolio is one that offers the highest expected return for a given level of risk or the lowest risk for a given level of expected return.

Single-Index Structure

A portfolio model that relates the returns on each asset to a single market index.