The Expected Returns for Bumpy Inc

question 47

Multiple Choice

The expected returns for Bumpy Inc.and Bouncy Inc.are 20 percent and 8 percent,respectively.The standard deviation is 35 percent for Bumpy and 16 percent for Bouncy.What is the portfolio standard deviation if 45 percent of the portfolio is in Bumpy and the two securities have perfect negative correlation?

• A) 4.60%
• B) 6.95%
• C) 0.21%
• D) 0.48%

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Definitions:

Research

The systematic investigation into and study of materials and sources in order to establish facts and reach new conclusions.

Stress

The physical or mental strain or tension resulting from challenging or adverse situations.

Illness

A state of being in poor health, typically as a result of disease, infection, or injury.

Cognitive Tendency

The inclination of individuals to think in certain patterns, often leading to biases or specific ways of processing information.