Suppose Sarah Can Borrow and Lend at the Risk Free-Rate

question 49

Multiple Choice

Suppose Sarah can borrow and lend at the risk free-rate of 3%.Which of the following four risky portfolios should she hold in combination with a position in the risk-free asset?

• A) portfolio with a standard deviation of 15% and an expected return of 12%
• B) portfolio with a standard deviation of 19% and an expected return of 15%
• C) portfolio with a standard deviation of 25% and an expected return of 18%
• D) portfolio with a standard deviation of 12% and an expected return of 9%

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Definitions:

Stored-Value Card

A plastic card that contains data regarding the value of the card, thereby allowing EFTs to be made.

Magnetic Strip

A strip of magnetic material on a credit card or other card containing data that can be read by swiping it through a reader.

Data

Information, especially facts or numbers, collected to be examined and considered and used to help make decisions.

Cutoff Hour

The specific time by which a certain action must be completed, often used in banking and other time-sensitive environments.