Julie Wants to Create a $5,000 Portfolio

question 36

Multiple Choice

Julie wants to create a $5,000 portfolio.She also wants to invest as much as possible in a high risk stock with the hope of earning a high rate of return.However, she wants her portfolio to have no more risk than the overall market.Which one of the following portfolios is most apt to meet all of her objectives?

• A)Invest the entire $5,000 in a stock with a beta of 1.0
• B)Invest $2,500 in a stock with a beta of 1.98 and $2,500 in a stock with a beta of 1.0
• C)Invest $2,500 in a risk-free asset and $2,500 in a stock with a beta of 2.0
• D)Invest $2,500 in a stock with a beta of 1.0, $1,250 in a risk-free asset, and $1,250 in a stock with a beta of 2.0
• E)Invest $2,000 in a stock with a beta of 3, $2,000 in a risk-free asset, and $1,000 in a stock with a beta of 1.0

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Definitions:

UCC

Short for Uniform Commercial Code, it is a set of laws that provide legal framework for commercial transactions in the United States.

Consideration

A key element in contract law that involves something of value exchanged between parties as part of an agreement.

Consideration

a core concept in contract law that involves something of value exchanged between parties, which is necessary for a contract to be legally binding.

Payment

The transfer of money or goods from one party to another as a fulfillment of an obligation or settlement of a debt.