A Risk-Free Asset Is Available at 5% Interest

question 2

Multiple Choice

A risk-free asset is available at 5% interest. Another asset is available with a mean rate of return of 15% but with a standard deviation of 5%. An investor is considering an investment portfolio consisting of some of each stock. On a graph with standard deviation on the horizontal axis and mean on the vertical axis, the budget line that expresses the alternative combinations of mean return and standard deviation possible with portfolios of these assets is a straight line with

• A) slope 2.
• B) slope -3.
• C) increasing slope as you move left.
• D) slope -1.
• E) slope -.

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Definitions:

Financial Plan

A comprehensive evaluation of an individual's or organization's current pay and future financial state by using currently known variables to predict future income, asset values, and withdrawal plans.

Additional Assets

Assets acquired by a business or individual that augment the existing resources, often enhancing operational capacity or value.

Future Periods

Time frames that have not yet occurred, often used in planning and forecasting.

Debt Capital

Funds obtained from borrowing.