Suppose That Ms

question 5

Multiple Choice

Suppose that Ms.Lynch can make up her portfolio using a risk-free asset that offers a surefire rate of return of 10% and a risky asset with an expected rate of return of 20%, with standard deviation 5.If she chooses a portfolio with an expected rate of return of 20%, then the standard deviation of her return on this portfolio will be

• A)2.50%.
• B)8%.
• C)5%.
• D)10%.
• E)None of the above.

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Definitions:

Reinvestment

The process of using dividends, interest, or any other form of income generated by an investment to purchase additional shares or units of that investment.

IRR Method

The process of estimating the rate of return on an investment by setting the net present value of all cash flows to zero, to assess its profitability.

MIRR

Modified Internal Rate of Return, a financial measure used to assess the attractiveness of investments by accounting for the cost of borrowing and reinvestment rates.

Cash Flows

The aggregate sum of money entering and exiting a business, notably affecting its cash flow.