An Investor Wishes to Construct a Portfolio Consisting of a 70

question 30

Multiple Choice

An investor wishes to construct a portfolio consisting of a 70 percent allocation to a stock index and a 30 percent allocation to a risk-free asset. The return on the risk-free asset is 4.5 percent, and the expected return on the stock index is 12 percent. The standard deviation of returns on the stock index is 6 percent. Calculate the expected standard deviation of the portfolio.

• A) 4.20 percent
• B) 25.20 percent
• C) 3.29 percent
• D) 10.80 percent
• E) 5.02 percent

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Definitions:

LIFO Inventory Cost Method

An inventory valuation method that assumes the last items placed in inventory are the first sold during an accounting period; stands for Last-In, First-Out.

Recent Costs

refer to the latest expenses incurred by a company, highlighting the most up-to-date financial outlays for operations or projects.

Current Revenues

Earnings generated from the normal operations of a company within a specific time period.

Lower-of-cost-or-market

An accounting principle that valuables inventory at the lower of its historical cost or the current market price, ensuring assets are not overstated.