A Friend Brags That She Expects to Earn a Return

question 49

Multiple Choice

A friend brags that she expects to earn a return of 10.25% on her portfolio with a beta of 0.825.Can you match her performance with Stock X (12% return and a beta of 1.1) and the risk free asset that earns a 5% return? With what portfolio weights?

• A) Yes, 0.75 Stock X and 0.25 Risk Free Asset
• B) Yes, 0.25 Stock X and 0.75 Risk Free Asset
• C) Yes, 0.5 Stock X and 0.5 Risk Free Asset
• D) No

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Definitions:

Manufacturing Overhead

Refers to all the indirect costs associated with the production process, such as utilities, maintenance, and salaries of supervisors that are not directly tied to the creation of a product.

Administrative Costs

Expenses related to the general operation of a business, including salaries of executive staff, office supplies, and utilities.

Indirect Costs

Costs that are not directly assignable to a specific product or project, such as rent, utilities, and managerial salaries.

Account Analysis

A detailed examination of the components of an account, usually to identify specific trends, costs, or areas of improvement within a business.