You Are Considering Investing $1,000 in a Complete Portfolio

question 49

Multiple Choice

You are considering investing $1,000 in a complete portfolio. The complete portfolio is composed of treasury bills that pay 5% and a risky portfolio, P, constructed with 2 risky securities X and Y. The optimal weights of X and Y in P are 60% and 40% respectively. X has an expected rate of return of 14% and Y has an expected rate of return of 10%.
-To form a complete portfolio with an expected rate of return of 11%,you should invest __________ of your complete portfolio in treasury bills.

• A) 19%
• B) 25%
• C) 36%
• D) 50%

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Definitions:

Marginal Tax Rates

The rate of additional federal income tax that applies to each additional dollar of taxable income, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.

Straight-Line Depreciation

A method of allocating the cost of a fixed asset evenly over its useful life.

Lease Payments

Regular payments made by a lessee to a lessor for the use of an asset over a specified period.

Net Advantage

The overall financial benefit that is realized from engaging in a particular investment, decision, or action.