You Invest $100 in a Risky Asset with an Expected

question 48

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. A portfolio that has an expected outcome of $115 is formed by

• A) investing $100 in the risky asset.
• B) investing $80 in the risky asset and $20 in the risk-free asset.
• C) borrowing $43 at the risk-free rate and investing the total amount ($143) in the risky asset.
• D) investing $43 in the risky asset and $57 in the riskless asset.
• E) Such a portfolio cannot be formed.

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Definitions:

Hard Work

Persistent effort applied towards achieving a goal or completing tasks.

Avoidance-Avoidance Conflict

A situation where an individual must choose between two negative outcomes.

Avoidance-Avoidance Conflict

A psychological conflict that arises when an individual must choose between two equally unattractive options or actions.

Undesirable Routes

Pathways or approaches that are not preferred or desirable due to various reasons such as inefficiency or risk.