You Invest $100 in a Risky Asset with an Expected

question 39

Multiple Choice

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05.What percentages of your money must be invested in the risk-free asset and the risky asset,respectively,to form a portfolio with a standard deviation of 0.06?

• A) 30% and 70%
• B) 50% and 50%
• C) 60% and 40%
• D) 40% and 60%
• E) cannot be determined

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Definitions:

Total Assets

The sum of all assets owned by a company, including cash, inventories, property, and equipment.

Total Asset Turnover

An economic indicator that assesses how well a business uses its assets to generate sales.

Profit Margin

A financial metric indicating the percentage of revenue that remains as profit after all expenses are deducted.

Statement of Cash Flows

A financial statement that summarizes the amount of cash and cash equivalents entering and leaving a company.