Consider a T-Bill with a Rate of Return of 5

question 21

Multiple Choice

Consider a T-bill with a rate of return of 5 percent and the following risky securities: Security A: E(r) = 0.15; Variance = 0.04
Security B: E(r) = 0.10; Variance = 0.0225
Security C: E(r) = 0.12; Variance = 0.01
Security D: E(r) = 0.13; Variance = 0.0625
From which set of portfolios,formed with the T-bill and any one of the 4 risky securities,would a risk-averse investor always choose his portfolio?

• A)The set of portfolios formed with the T-bill and security A.
• B)The set of portfolios formed with the T-bill and security B.
• C)The set of portfolios formed with the T-bill and security C.
• D)The set of portfolios formed with the T-bill and security D.
• E)Cannot be determined.

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Definitions:

FIFO Method

First In, First Out; an inventory valuation method where the first items purchased or produced are the first to be sold.

Goods Completed

Finished goods that have gone through the manufacturing process and are ready to be sold or distributed.

FIFO Method

An inventory valuation method that assumes the first items placed in inventory are the first sold, standing for "First In, First Out."

Cost Per Equivalent Unit

A measurement used in cost accounting to calculate the cost assigned to each unit produced, by considering the costs incurred at each stage of production.