A Portfolio Consists of One Risky Asset and One Risk-Free

question 60

Multiple Choice

A portfolio consists of one risky asset and one risk-free asset.The risky asset has an expected return of 11.2 percent and a beta of 1.39.The risk-free asset has an expected return of 3.4 percent.How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.07?

• A) 16 percent
• B) 23 percent
• C) 32 percent
• D) 45 percent
• E) 54 percent

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Definitions:

45-degree Line

A line graphed in economics and finance representing places where two variables measured on the axes are equal in value.

Gini Coefficient

A scale assessing the distribution of income among a population, where 0 denotes total equality and 1 indicates complete disparity.

Income

Periodic financial returns from work engagements or investments.

Lorenz Curve

A graphical representation of the distribution of income or wealth within a society, indicating levels of inequality.