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:

Salivation

The production and release of saliva in the mouth, often in response to the sight, smell, or taste of food.

Sound of a Tone

A specific auditory perception characterized by a steady frequency or pitch, distinguishable from noise by its consistency and musical quality.

Acquisition

In classical conditioning, the initial stage, when one links a neutral stimulus and an unconditioned stimulus so that the neutral stimulus begins triggering the conditioned response.

Electric Shock

A sudden discharge of electricity through a part of the body, which can cause damage or stimulation.