Charlie and Lucinda Each Have $50,000 Invested in Stock Portfolios

question 62

Multiple Choice

Charlie and Lucinda each have $50,000 invested in stock portfolios. Charlie's has a beta of 1.2, an expected return of 10.8%, and a standard deviation of 25%. Lucinda's has a beta of 0.8, an expected return of 9.2%, and a standard deviation that is also 25%. The correlation coefficient, r, between Charlie's and Lucinda's portfolios is zero. If Charlie and Lucinda marry and combine their portfolios, which of the following best describes their combined $100,000 portfolioσ

• A) the combined portfolio's beta will be equal to a simple weighted average of the betas of the two individual portfolios, 1.0; its expected return will be equal to a simple weighted average of the expected returns of the two individual portfolios, 10.0%; and its standard deviation will be less than the simple average of the two portfolios' standard deviations, 25%.
• B) the combined portfolio's expected return will be greater than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.
• C) the combined portfolio's standard deviation will be greater than the simple average of the two portfolios' standard deviations, 25%.
• D) the combined portfolio's standard deviation will be equal to a simple average of the two portfolios' standard deviations, 25%.
• E) the combined portfolio's expected return will be less than the simple weighted average of the expected returns of the two individual portfolios, 10.0%.

Predict phenotypic and genotypic ratios in offspring from given parental genotypes.

Interpret pedigrees to determine inheritance patterns and affected individuals.

Identify allele combinations representing different genetic traits, including dominant and recessive.

Recognize the number of alleles required to express a monohybrid trait.

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Definitions:

Cash Flow Hedge

A hedge of the exposure to the variability in cash flows that is attributable to a particular risk that is associated with all, or some component of, a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.

Forward Contract

A customized contract between two parties to buy or sell an asset at a specified price on a future date.

Recognised Borrowings

Loans and other forms of financial debt that are acknowledged on a company's balance sheet as liabilities.

Forward Exchange Contract

An agreement between two parties to exchange a specified quantity of one currency for another at a specified exchange rate on a specified future date.