Use the Information for the Question(s)below

question 12

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 maximum expected return that Tom could achieve by investing in the market portfolio and risk-free investment is closest to:

• A)13%.
• B)15%.
• C)16%.
• D)12%.

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Definitions:

Relationship Between Two Variables

A statistical or causal connection between two types of variables or data sets.

Quantitative Data

Numerical information that represents the quantity or amount of something, allowing for measurement and statistical analysis.

Y-intercept

The point where a line or curve intersects the y-axis of a graph, often representing the value of the dependent variable when the independent variable is zero.

Simple Linear Regression

A statistical method for modeling the relationship between a single independent variable and a dependent variable by fitting a linear equation to observed data.