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

question 59

Multiple Choice

Consider a T-bill with a rate of return of 5% 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 four 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:

Items Reported

Specific financial data points or transaction details disclosed in a company’s financial statements.

Accounting

Accounting is the systematic process of recording, measuring, and communicating financial information about an entity, facilitating decision making and financial management.

Credit Balance

The amount of money a business owes to its creditors, represented as a liability on the balance sheet.

Gain on Sale of Land

The financial profit earned from selling land for more than its purchase cost.