An Investor Can Design a Risky Portfolio Based on Two

question 5

Multiple Choice

An investor can design a risky portfolio based on two stocks, A and B. Stock A has an expected return of 21% and a standard deviation of return of 39%. Stock B has an expected return of 14% and a standard deviation of return of 20%. The correlation coefficient between the returns of A and B is 0.4. The risk-free rate of return is 5%.
-The proportion of the optimal risky portfolio that should be invested in stock B is approximately _________.

• A) 29%
• B) 44%
• C) 56%
• D) 71%

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Definitions:

Applied Factory Overhead

The portion of factory overhead costs assigned to each unit of production, based on an estimated or predetermined rate.

Electrical Motor

A device that converts electrical energy into mechanical energy, commonly used in appliances, industrial equipment, and vehicles.

Manufacturing Overhead

includes all indirect costs associated with the production process, such as utilities, maintenance, and salaries of non-direct labor.

Standard Cost System

An accounting method that uses predetermined costs for product costing and decision-making purposes.