Suppose That Ms

question 2

Multiple Choice

Suppose that Ms.Lynch can make up her portfolio using a risk-free asset that offers a surefire rate of return of 5% and a risky asset with an expected rate of return of 10%, with standard deviation 5.If she chooses a portfolio with an expected rate of return of 8.75%, then the standard deviation of her return on this portfolio will be

• A)7.50%.
• B)3.75%.
• C)1.88%.
• D)6.75%.
• E)None of the above.

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Definitions:

Fixed Costs

Expenses that do not change with the level of production or business activity.

Variable Costs

Expenses that change in proportion to the production output or sales.

Operating Leverage

The degree to which a company can increase its profits by increasing sales, highlighting the proportion of fixed costs in a company’s cost structure.

Forecasting Risk

The uncertainty in predicting future values due to unforeseen events or inaccuracies in analysis, affecting strategic and operational decisions.