An Investor Constructs a Portfolio with a 75% Allocation to a Stock

question 42

Multiple Choice

An investor constructs a portfolio with a 75% allocation to a stock index and a 25% allocation to a risk free asset.The expected returns on the risk-free asset and the stock index are 3% and 10%,respectively.The standard deviation of returns on the stock index is 14%.Calculate the expected standard deviation of the portfolio.

• A) 7.5%
• B) 9.0%
• C) 10.5%
• D) 11.5%
• E) 13.0%

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Definitions:

Book Value

The net value of a company's assets minus its liabilities, often used to evaluate its financial health.

Salvage Value

The approximated value of an asset at the close of its functional life.

Useful Life

The estimated duration of time that an asset is expected to be operational and economically viable.

Units-Of-Activity

A depreciation method where the expense is based on the actual usage or activity of the asset rather than the passage of time.