Assume the CAPM Is the Correct Asset Pricing Model,the Risk-Free $-60 \%$

question 18

Multiple Choice

Assume the CAPM is the correct asset pricing model,the risk-free rate of return is 6%,and the market portfolio has an expected return and a standard deviation of 16% and 0.10%,respectively.An investor has a portfolio consisting of asset A,which has a beta of 0.75,and asset B,which has a beta of 1.25.If the investor wishes to earn a return identical to that of the risk-free asset,what weight should the investor place in assets A and B?

• A) \( -60 \% \) in asset \( \mathrm{A} \) and \( 160 \% \) in asset \( \mathrm{B} \)
• B) \( 0 \% \) in asset \( A \) and \( 100 \% \) in asset \( B \)
• C) \( 200 \% \) in asset \( A \) and \( -100 \% \) in asset \( B \)
• D) \( 250 \% \) in asset \( A \) and \( -150 \% \) in asset \( B \)

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Definitions:

Schedule

A plan that details when certain tasks or activities are to be done, outlining a timeline for events.

Reinforcement

In behavior psychology, it refers to the process of encouraging or establishing a pattern of behavior by offering rewards or consequences.

Intermittent Reinforcement

A conditioning schedule where a response is only sometimes reinforced, leading to more resistant behavior to extinction.

Occurrence

Occurrence denotes an event or a situation that happens or takes place, often used to describe instances of varying significance.