A Portfolio Consists of One Risky Asset and One Risk-Free

question 51

Multiple Choice

A portfolio consists of one risky asset and one risk-free asset. The risky asset has an expected return of 13.2 percent and a beta of 1.43. The risk-free asset has an expected return of 3.8 percent. How much of the portfolio is invested in the risk-free asset if the portfolio beta is 1.06?

• A) 26 percent
• B) 34 percent
• C) 42 percent
• D) 65 percent
• E) 74 percent

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Definitions:

Historical Relationship

Refers to the analysis of past interactions or correlations between variables to predict future trends or behaviors.

Bad Debt Expense

This refers to the amount of receivables a company does not expect to collect and hence records as an expense on its income statement.

Outstanding Accounts Receivable

Amounts owed to a business by its customers for goods or services delivered but not yet paid for.

Income Statement Approach

A method used to determine income tax liabilities by examining the revenues, expenses, gains, and losses reported on a company's income statement.