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:

Price-Regulated

A market condition where the government sets the maximum or minimum prices for certain goods or services to protect consumer interests or ensure affordability.

Marginal Cost

The extra expense associated with the creation of an additional unit of a product or service.

Deadweight Loss

A loss of economic efficiency that can occur when the equilibrium for a good or a service is not achieved or is not achievable, leading to a mismatch in supply and demand.

Demand Curve

A chart that displays the connection between a product's price and the amount of the product buyers are prepared and able to buy at different price levels.