Exhibit 6-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 40

Multiple Choice

Exhibit 6-1
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S) $$\begin{array} { c c } \text { Asset } ( A ) & \text { Asset } ( B ) \\\hline E \left( R _ { A } \right) = 10 \% & E \left( R _ { B } \right) = 15 \% \\\left( \sigma _ { A } \right) = 8 \% & \left( \sigma _ { B } \right) = 9.5 \% \\W _ { A } = 0.25 & W _ { B } = 0.75 \\\operatorname { Cov } _ { A , B } = 0.006\end{array}$$
-Refer to Exhibit 6-1. What is the expected return of a portfolio of two risky assets if the expected return E(R_i) , standard deviation (?_i) , covariance (COV_i,j) , and asset weight (W_i) are as shown above?

• A) 8.79%
• B) 12.5%
• C) 13.75%
• D) 7.72%
• E) 12%

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Definitions:

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets, indicating the company's ability to generate additional revenues.

Cash Flow from Assets

The total amount of money being transferred in and out of a business, especially from operational, investing, and financing activities.

Dividends Paid

The portion of a company’s earnings distributed to its shareholders, usually in the form of cash or additional shares.

Financial Leverage

The use of borrowed capital (debt) to increase the potential return of an investment.