An Investor Can Design a Risky Portfolio Based on Two

question 24

Multiple Choice

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 18% and a standard deviation of return of 20%. Stock B has an expected return of 14% and a standard deviation of return of 5%. The correlation coefficient between the returns of A and B is 0.50. The risk-free rate of return is 10%.
-The proportion of the optimal risky portfolio that should be invested in stock A is _________.

• A) 0%
• B) 40%
• C) 60%
• D) 100%

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Definitions:

Skew

A measure of the asymmetry or deviation from symmetry in a distribution of data, which can be positive or negative.

Data

Information collected for analysis or used to reason, discuss, or calculate something.

Significantly Distorted

Describes data or results that are heavily altered or skewed from their original or expected form, often beyond the effect of chance.

75th Percentile

The value below which 75% of the data points in a dataset lie.