Suppose That Fenner Smith of Problem 2 Must Divide His

question 2

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 45% 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) 2.
• B) 1.
• C) -1.
• D) -2.
• E) 3.

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Definitions:

Actor/Observer Bias

The tendency to attribute one's own actions to external causes while attributing others' actions to their internal characteristics.

Ingroup/Outgroup Bias

The tendency to favor members of one's own group (the ingroup) over those from different groups (outgroup), often leading to prejudice and discrimination.

Self-Fulfilling Prophecy

A belief or expectation that influences behavior in a way that makes the belief become true.

Thin Slices

Quick judgments made about people or situations based on very limited information, often relying on intuition.