An Investor Can Design a Risky Portfolio Based on Two

question 23

Multiple Choice

An investor can design a risky portfolio based on two stocks, A and B. The standard deviation of return on stock A is 24%, while the standard deviation on stock B is 14%. The correlation coefficient between the returns on A and B is .35. The expected return on stock A is 25%, while on stock B it is 11%. The proportion of the minimum-variance portfolio that would be invested in stock B is approximately ________.

• A) 45%
• B) 67%
• C) 85%
• D) 92%

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Definitions:

Interact

To communicate or act together in a way that influences each other, usually in a social context.

Intercultural Communication

The process of exchanging meaningful and unambiguous information between individuals from different cultural backgrounds.

Miscommunication

The failure to convey or understand a message correctly between parties, leading to confusion, misunderstanding, or conflict.

Dominant Cultures

The culture of the predominant social group within a society, which often sets the norms, values, and standards for others.