An Investor Can Design a Risky Portfolio Based on Two

question 70

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 standard deviation of return on the optimal risky portfolio is _________.

• A) 0%
• B) 5%
• C) 7%
• D) 20%

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Definitions:

Current Market

The existing state of the market, including current prices, volumes, and trends, reflecting the most recent period of trading.

TIPS Bond

Treasury Inflation-Protected Securities (TIPS) are U.S. government bonds that are indexed to inflation in order to protect investors from the negative effects of rising prices.

Coupon Rate

The annual interest rate paid by a bond issuer to its bondholders, expressed as a percentage of the bond's face value.

Inflation Rate

The speed at which prices for products and services ascend, resulting in a decline in how much can be bought.