Suppose That Fenner Smith of Problem 2 Must Divide His

question 10

Multiple Choice

Suppose that Fenner Smith of Problem 2 must divide his portfolio between two assets, one of which gives him an expected rate of return of 15% with zero standard deviation and one of which gives him an expected rate of return of 30% and has a standard deviation of 15. 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) 0.50.
• B) -1.
• C) -0.50.
• D) 1.
• E) 1.50.

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Definitions:

Level Of Significance

A threshold in hypothesis testing that measures the probability of rejecting a null hypothesis when it is actually true, commonly denoted by alpha (α).

Hourly Wages

The amount of money paid to an employee for each hour of work.

Interval Estimate

An estimate of a population parameter that specifies a range within which the parameter is expected to lie, often associated with a confidence level.

Test Statistic

A measure calculated from sample data to make decisions about a population parameter in hypothesis testing.