You Invest $100 in a Risky Asset with an Expected

question 26

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. What percentages of your money must be invested in the risk-free asset and the risky asset, respectively, to form a portfolio with a standard deviation of 0.06?

• A) 30% and 70%
• B) 50% and 50%
• C) 60% and 40%
• D) 40% and 60%
• E) Cannot be determined.

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Definitions:

Neuroticism

Qualities within a person that manifest as anxiousness, fear, emotional variability, concern, enviousness, frustration, possessiveness, and solitude.

Extraversion

A personality trait characterized by outgoingness, high levels of activity, and energy, and a tendency to seek stimulation in the company of others.

Avoidance Motivation

A type of behavior aimed at avoiding negative outcomes, failures, or punishments, as opposed to seeking positive outcomes.

Hierarchy Of Needs

A motivational theory in psychology proposed by Abraham Maslow, depicting a five-tier model of human needs, from basic (physiological) to higher-order (self-actualization) needs.