You Invest $1,000 in a Risky Asset with an Expected

question 51

Multiple Choice

You invest $1,000 in a risky asset with an expected rate of return of 0.17 and a standard deviation of 0.40 and a T-bill with a rate of return of 0.04. The slope of the capital allocation line formed with the risky asset and the risk-free asset is equal to

• A) 0.325.
• B) 0.675.
• C) 0.912.
• D) 0.407.
• E) Cannot be determined.

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Definitions:

Average Variable Cost

The average amount of variable cost per unit, calculated by dividing total variable costs by the quantity of output.

Profit-Maximizing

The approach taken by an enterprise to ascertain the optimal price and output quantity for the highest profit.

MR = MC

A principle in economics stating that profit maximization occurs when marginal revenue equals marginal cost.

Perfectly Competitive Market

An economic theory describing a market where no individual buyers or sellers have the power to influence the price of a product, and where the products offered are homogenous, with no barriers to entry or exit for businesses.