Your Client, Bo Regard, Holds a Complete Portfolio That Consists

question 47

Multiple Choice

Your client, Bo Regard, holds a complete portfolio that consists of a portfolio of risky assets (P) and T-Bills. The information below refers to these assets. $$\begin{array} { l l } \mathrm { E } \left( \mathrm { R } _ { \mathrm { p } } \right) & 12.00 \% \\\text { Standard Deviation of P } & 7.20 \% \\\text { T-Bill rate } & 3.60 \% \\& \\\text { Proportion of Complete Portfolio in P } & 80 \% \\\text { Proportion of Complete Portfolio in T-Bills } & 20 \% \\& \\\text { Composition of P: } & \\\text { Stock A } & 40.00 \% \\\text { Stock B } & 25.00 \% \\\text { Stock C } & 35.00 \% \\\hline\text { Total } & \underline { 100.00 \% } \\\hline\end{array}$$
-What is the equation of Bo's Capital Allocation Line?

• A)E(r_C) = 7.2 + 3.6 * Standard Deviation of C
• B)E(r_C) = 3.6 + 1.167 * Standard Deviation of C
• C)E(r_C) = 3.6 + 12.0 * Standard Deviation of C
• D)E(r_C) = 0.2 + 1.167 * Standard Deviation of C
• E)E(r_C)= 3.6 + 0.857 * Standard Deviation of C

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