Use the Information for the Question(s)below

question 38

Multiple Choice

Use the information for the question(s) below.
Tom's portfolio consists solely of an investment in Merck stock.Merck has an expected return of 13% and a volatility of 25%.The market portfolio has an expected return of 12% and a volatility of 18%.The risk-free rate is 4%.Assume that the CAPM assumptions hold in the market.
-Assuming that Tom wants to maintain the current volatility of his portfolio,then the amount that Tom should invest in the market portfolio to maximize his expected return is closest to:

• A)72%
• B)92%
• C)110%
• D)140%

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Definitions:

Epinephrine

A hormone and neurotransmitter also known as adrenaline, involved in regulating visceral functions (e.g., heart rate) and in the fight-or-flight response.

Melatonin

A hormone, secreted by the pineal gland, that is involved in the regulation of daily biological rhythms.

Oxytocin

A hormone and neurotransmitter involved in childbirth and lactation, also known as the "love hormone," it plays a role in social bonding, sexual reproduction, and during and after childbirth.

Prefrontal Cortex

The part of the frontal lobes of the brain that is involved in decision making, problem-solving, control of purposeful behaviors, consciousness, and emotions.