Assume You Own a Portfolio That Is Invested 50 Percent

question 84

Multiple Choice

Assume you own a portfolio that is invested 50 percent in large-company stocks and 50 percent in corporate bonds. If you want to increase the potential annual return on this portfolio, you could:

• A)decrease the investment in stocks and increase the investment in bonds.
• B)replace the corporate bonds with intermediate-term government bonds.
• C)replace the corporate bonds with Treasury bills.
• D)increase the standard deviation of the portfolio.
• E)reduce the expected volatility of the portfolio.

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Definitions:

Industry Classification

A system for categorizing companies and stocks based on their primary business activities.

Du Pont Identity

A financial analysis formula that breaks down return on equity into three components: profit margin, asset turnover, and financial leverage.

Operating Efficiency

A measure of the effectiveness and productivity with which a business or organization operates, often relating to how well it utilizes its resources.

Asset Use Efficiency

How effectively a company utilizes its assets to generate revenue.