You Are Considering Investing $1000 in a Complete Portfolio

question 45

Multiple Choice

You are considering investing $1000 in a complete portfolio. The complete portfolio is composed of Treasury notes that pay 5% and a risky portfolio, P, constructed with two risky securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%. To form a complete portfolio with an expected rate of return of 8%, you should invest approximately ________ in the risky portfolio. This will mean you will also invest approximately ________ and ________ of your complete portfolio in security X and Y respectively.

• A)0%, 60%, 40%
• B)25%, 45%, 30%
• C)40%, 24%, 16%
• D)50%, 30%, 20%

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Definitions:

Unit Product Cost

The total cost to produce one unit of product, including direct material, direct labor, and manufacturing overhead.

Income Statement

A financial statement that shows a company's revenues and expenses over a specific period, detailing how net revenue is transformed into net earnings.

Variable Costing

An accounting method that only includes variable production costs (costs that change with the level of output) in product costs.

Direct Labor Cost

The cost of wages and other benefits for workers directly involved in the production process.