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:

Quantitative Variables

Variables that represent measurable quantities and can take on numerical values.

Chi-Square Test

A statistical method to assess the differences between categorical variables in a contingency table, comparing observed frequencies to expected frequencies.

Degrees of Freedom

The number of independent values or quantities which can be assigned to a statistical distribution.

P-Value

The likelihood of encountering test outcomes that are as significant or more significant than the actual observed outcomes, assuming the null hypothesis is true.