You Invest $100 in a Risky Asset with an Expected

question 48

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. A portfolio that has an expected outcome of $115 is formed by

• A) investing $100 in the risky asset.
• B) investing $80 in the risky asset and $20 in the risk-free asset.
• C) borrowing $43 at the risk-free rate and investing the total amount ($143) in the risky asset.
• D) investing $43 in the risky asset and $57 in the riskless asset.
• E) Such a portfolio cannot be formed.

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Definitions:

Conditioned Inhibition

The permanent inhibition of a specific behavior as a result of the continued failure of that response to reduce the drive state; alternatively, a stimulus (CS2) may develop the ability to suppress the response to another stimulus (CS1) when the CS1 is paired with a UCS and the CS2 is presented without UCS.

Excitatory Strength

The level of potential or ability of a stimulus to produce a response or a desired behavioral effect.

Drive State

A psychological state that motivates an organism to satisfy a physiological need, such as hunger or thirst.

Habit Strength

The strength of the connection between a particular environmental stimulus and a specific response.