You Invest $100 in a Risky Asset with an Expected

question 27

Multiple Choice

You invest $100 in a risky asset with an expected rate of return of 0.11 and a standard deviation of 0.20 and a T-bill with a rate of return of 0.03. What percentages of your money must be invested in the risky asset and the risk-free asset, respectively, to form a portfolio with an expected return of 0.08?

• A) 85% and 15%
• B) 75% and 25%
• C) 62.5% and 37.5%
• D) 57% and 43%
• E) Cannot be determined.

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Definitions:

Chi-squared Goodness-of-fit

A statistical test to determine if sample data fits a population with a specific distribution, comparing observed values to expected values.

Contingency Table

A type of table used in statistics to summarize the relationship between several categorical variables.

Nominal Variable

A type of variable used in statistics that represents categories without any natural order or rank.

Critical Factors

Essential elements or conditions that significantly impact the outcome or success of a project, process, or strategy.