You Put Half of Your Money in a Share Portfolio

question 26

Multiple Choice

You put half of your money in a share portfolio that has an expected return of 14% and a standard deviation of 24%. You put the rest of you money in a risky bond portfolio that has an expected return of 6% and a standard deviation of 12%. The share and bond portfolio have a correlation 0.55. The standard deviation of the resulting portfolio will be ________.

• A)more than 18% but less than 24%
• B)equal to 18%
• C)more than 12% but less than 18%
• D)equal to 12%

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Definitions:

Contract Rate

The agreed-upon price or interest rate specified within a contract.

Bond Indenture

A legal document specifying the terms and conditions of a bond issue, including the interest rate, maturity date, and other obligations of the issuer.

Bondholders

Individuals or institutions that hold the debt securities issued by corporations or governmental entities.

Discount on Bonds Payable

The difference between the par value of a bond and its lower selling price, recognized as an expense over the life of the bond.