A Portfolio Consists of Two Securities: a Risk-Free Asset and an Equity

question 87

Multiple Choice

A portfolio consists of two securities: a risk-free asset and an equity security.The expected return on the risk-free asset is 4.25 percent.The expected return of the equity security is 16 percent with a standard deviation of 22 percent.What is the portfolio standard deviation if the expected return for the portfolio is 12 percent?

• A) 6.99%
• B) 7.49%
• C) 10.55%
• D) 14.51%

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Definitions:

Direct Expenses

Costs that can be directly tied to the production of specific goods or services, such as raw materials and labor.

Indirect Expenses

Costs that are not directly attributable to a specific cost object, such as a product or department, including utilities, rent, and administrative salaries.

Administrative Costs

Expenses related to the general operation of a business, including salaries of executive officers, legal and clerical work, and office supplies.

Maintenance Expenses

Costs incurred to keep an asset in working condition or to maintain its operational efficiency.