An Investor Can Design a Risky Portfolio Based on Two

question 65

Multiple Choice

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is .50. The risk-free rate of return is 10%. The standard deviation of return on the optimal risky portfolio is ________.

• A) 0%
• B) 5%
• C) 7%
• D) 20%

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Definitions:

Nature

Refers to the innate traits, qualities, and genetics that determine who we are, often contrasted with nurture, the influence of the environment and experience.

Nurture

The influence of environmental factors on an individual's development, including upbringing, education, and social interactions.

Ebbinghaus

A psychologist known for his work on memory and the forgetting curve, demonstrating how memory declines over time.

Participant

An individual who takes part in a study, experiment, or any form of academic or scientific research, contributing data or responses for analysis.