An Investor Invests 70% of Her Wealth in a Risky

question 2

Multiple Choice

An investor invests 70% of her wealth in a risky asset with an expected rate of return of 15% and a variance of 5% and she puts 30% in a Treasury bond that pays 5%. Her portfolio's expected rate of return and standard deviation are ________ and ________ respectively.

• A)10.0%, 6.7%
• B)12.0%, 22.4%
• C)12.0%, 15.7%
• D)10.0%, 35.0%

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Definitions:

Returns to Scale

The change in output resulting from a proportional change in all inputs, where increases can be constant, increasing, or decreasing.

Long-Run Average Cost

The average cost per unit of output where all inputs, including capital, are variable in the long term.

Marginal Cost

The costs entailed in generating an extra unit of a product or service.

Economies of Scale

The reduction in per-unit production costs resulting from an increase in the scale of production.