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

question 27

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 8%,you should invest approximately __________ in the risky portfolio.This will mean you will also invest approximately __________ and __________ of your complete portfolio in security X and Y respectively.

• A) 0%, 60%, 40%
• B) 25%, 45%, 30%
• C) 40%, 24%, 16%
• D) 50%, 30%, 20%

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Definitions:

Manufacturer

An entity or business that produces goods, usually on a large scale, involving machinery, tools, and labor.

Retailer

An entity that sells goods or merchandise directly to consumers through various channels, including physical stores and online platforms.

Overstock Quantity

An excessive amount of inventory that exceeds the demand, often leading to increased storage costs and potential waste.

Profits Increase

An upward movement in the net financial gains of a business, often resulting from increased revenue, reduced costs, or both.