Use the Information for the Question(s)below

question 2

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 expected return on his portfolio,then the minimum volatility that Tom could achieve by investing in the market portfolio and risk-free investment is closest to:

• A)20%.
• B)25%.
• C)22%.
• D)18%.

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Definitions:

Trade Off

The concept of sacrificing one good or service in order to obtain another, often used in decision-making processes to weigh different options.

Good

A tangible product or service that can satisfy consumers' wants or needs.

Optimum

The most favorable condition or level that achieves the best possible outcome or efficiency.

Good X

A placeholder term for any specific good, product, or item within economic analysis.