You Invest $100 in a Risky Asset with an Expected

question 16

Multiple Choice

You invest $100 in a risky asset with an expected rate of return of 0.12 and a standard deviation of 0.15 and a T-bill with a rate of return of 0.05.
-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 0.09?

• A)85% and 15%
• B)75% and 25%
• C)67% and 33%
• D)57% and 43%
• E)cannot be determined

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Definitions:

Goals

Goals or intended results that a person or a team strives to accomplish.

Overly Optimistic

Describes an excessive belief in the positive outcomes of situations or events, often ignoring possible risks or negative outcomes.

Realistic

Pertaining to or resembling a real-life situation or practical considerations, often grounded in factual and pragmatic thinking.

Zeigarnik Effect

A psychological phenomenon in which people remember uncompleted or interrupted tasks better than completed tasks.