Suppose That Fenner Smith of Workouts Problem 13

question 6

Multiple Choice

Suppose that Fenner Smith of Workouts Problem 13.2 must divide his portfolio between two assets, one of which gives him an expected rate of return of 10% with zero standard deviation and one of which gives him an expected rate of return of 25% and has a standard deviation of 5%. He can alter the expected rate of return and the variance of his portfolio by changing the proportions in which he holds the two assets. If we draw a "budget line" with expected return on the vertical axis and standard deviation on the horizontal axis, depicting the combinations that Smith can obtain, the slope of this budget line is

• A) 1.50.
• B) -1.50.
• C) -3.
• D) 3.
• E) 4.50.

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Definitions:

Landslides

Rapid movements of rock and soil down a slope due to gravity.

Groundwater

Water that occupies the pore spaces and fractures in soil, sand, and rock, located beneath the Earth’s surface.

Uranium

A heavy radioactive metallic element used as fuel in nuclear reactors and as a component in nuclear weapons.

Natural Gas

Hydrocarbons that exist as gas or vapor at ordinary temperatures and pressures.