Use the Following Information to Answer the Question(s)below

question 54

Multiple Choice

Use the following information to answer the question(s) below.
Suppose that all stocks can be grouped into two mutually exclusive portfolios (with each stock appearing in only one portfolio) : growth stocks and value stocks.Assume that these two portfolios are equal in size (market value) ,the correlation of their returns is equal to 0.6,and the portfolios have the following characteristics: The risk-free rate is 3.5%.
-The volatility on the market portfolio (which is a 50-50 combination of the value and growth portfolios) is closest to:

• A)13.5%.
• B)15.2%.
• C)17.1%.
• D)19.0%.

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Definitions:

Gut Reactions

Instantaneous responses we have to a situation or stimulus, not based on rational analysis but on our innate, visceral feelings.

Broaden-and-build Theory

A psychological model suggesting that positive emotions expand one's awareness and inspire novel, varied, and exploratory thoughts and actions.

Positive Emotions

Feelings that are enjoyable and pleasurable, such as happiness, joy, or love, which contribute to positive well-being.

Differentiated

To be distinguished or made distinct in nature or qualities from others, often referring to products, services, or market segments.